Real estate transactions, capital gains tax, Budget 2018Budget 2018 has given a small but an important sop to real estate sector by giving a 5% relaxation in the difference between the circle rate and the stamp deed value of the real estate transaction for the purpose of calculating capital gains tax.

The ‘circle rate’ is the price of land (or a flat) in an area based on the sales of similar properties set by the government, for the purposes of levying stamp duty. In some states, this is known as the ‘Ready Reckoner.’ It is also used in income tax law as a check on cash transactions.

An unusually low reported rate for a real estate sale can mean that a large cash component is involved. As a result, according to the current rules, the Income Tax Act had provided if the circle rate exceeded the actual rate of a transaction by more than Rs 50,000, the circle rate would be considered for the purposes of assessment and the difference in value shall be taxable.

Now, in a relief to the crumbling real estate market, Budget 2018 has allowed parties to deviate up to 5% from the circle rate without attracting the deemed income provisions of the act.

How it works

For example, Mr A buys a flat from Mr B. The value according to the circle rate of the flat is Rs 25 lakh while the sale deed lists the consideration at Rs 20 lakh. For income tax purposes, Mr B’s selling price will be considered as Rs 25 lakh and he will have to pay capital gains tax on the additional Rs 5 lakh as well, according to the existing rules.

This provision affects three types of transfers:

  1. Sale by a builder/promoter to a customer (Section 43 CA). In this case, the circle rate-actual value difference will be deemed to be part of the builder’s income from business and profession.
  2. Sale by a previous owner (who is not a builder or real estate developer) to another (Section 50C). In this case, the difference will be considered to be part of the seller’s capital gain.
  3. Transfers between unrelated persons (Section 56). This provision stipulates that where immovable property is transferred for inadequate consideration, it will be considered to be part of the receiver’s income from other sources. This section does not apply to transfers between close relatives or transfers under wills.

Parties to a transaction could approach a valuation officer and make a case for a low valuation. However, this is a relatively cumbersome process which could hold up the transaction for a long time.

Now, this has been relaxed by allowing parties to deviate up to 5% from the circle rate without attracting the deemed income provisions of the act.

Also, even if the difference between both these values is higher than 5% but does not exceed Rs 50,000, the buyer will not be required to pay any tax on such difference.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at