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What if Circle Rate is more than Market Value?

Circle Rate
Circle Rate

“Circle Rate is more than Market Value” A Typical Buyer’s Dilemma what should i do?. Circle Rate is minimum value at which the property can be sold or purchased. Whereas market value is the rate at which actual transaction takes place. Circle Rate is also known as Guidance Value, Ready Reckoner Rate, Govt Value, Floor Price etc. Whereas Market Value is also known as Consideration Value. In layman terms, Circle Rate is Market Value of the property as per local state government. Few years back the situation was reverse i.e. Market Value was much higher compared to the Circle Rate. For example, In Delhi the market value of a property was 2 Cr but Circle Rate was just 1.4 Cr therefore buyer registered property at 1.4 Cr. In short, Stamp Duty and Registration Charges were paid on 1.4 Cr instead of 2 Cr.

Stamp duty and registration charges are one of the major source of revenue for State Government. It’s a dilemma or rather catch 22 situations for any state government to maintain circle rate at par with current market value to avoid any leakage of revenue from stamp duty and property registration. Unfortunately, under current scenario the real estate sector is not in a good shape. The prices have corrected sharply. For example, a property costing 1.8 Cr in Gurgaon is now available for 1.4 Cr. The circle rate of this property is 1.75 Cr. Going by the basic logic that Circle Rate of a property should reflect the Market Value of the property. But it is not true always as i have not come across a single instance wherein State Govt has reduced the Circle rates to reflect the true market value. The reason being, State Govt would not like to lose any revenue from stamp duty and registration. At the same time, State Govt ignore the fact that this situation further depress the sentiments of Real Estate Sector. This explains near Zero property transactions in some of the pockets of Delhi and NCR. The buyers avoid buying a property in a scenario when Circle rate is more than Market Value. This situation creates a peculiar problem for a buyer. Basically, 2 question arises

(a) How much value should i declare in my Sale Deed?

(b) On what value should i pay Stamp Duty and Registration Charges?

Circle Rate is more than Market Value – What to do?

If Circle Rate is more than Market Value then in my opinion buyer has broadly 3 options to select from. Now applicability of an option vary from case to case to basis. Also, the rules vary from state to state. The following options are universal but should be exercised keeping local rules and regulations in mind. These options will be explained considering an example of Mr. Sanjay. Assuming, he is planning to buy a property with Market Value of 70 Lac. The circle rate / ready reckoner / Guidance Value / Floor Price / Govt Value of the property is 1 Cr. Now Sanjay has 2 questions in mind which i mentioned above i.e. value to be mentioned in sale deed and on what value the stamp duty and registration charges are payable.

(i) Option A: Declare Market Value equals to Circle Rate

In this case, Sanjay will declare the Market Value equals to Circle Rate in the sale deed. He will pay stamp duty equivalent to Circle Rate and register the sale deed at a value equal to 1 Cr. One minute, though it sounds great & simple but the actual payment made to the seller is 70 Lac instead of 1 Cr. The real issue in this case that Income Tax department has all the records of payment made to the seller by the buyer. The actual payment made is 70 lac but if Sanjay mention 1 Cr in the sale deed then it will be assumed that 30 lac is paid in cash or black component. As the govt is concerned about black money in real estate sector and Sanjay will find it difficult to explain. Though the intentions are good and the only objective is to comply with the law but it may land him in trouble. This option is most commonly used in states wherein Sub-Registrar don’t allow sale or purchase below circle rate. Technically, Circle Rate means that property cannot be sold or purchased below circle rate. This is the most difficult situation and instead of exercising option A, Sanjay has only one option to exercise i.e. option C.

(ii) Option B: Declare actual Market Value in Sale Deed and Pay Stamp Duty & Registration Charges at Circle Rate

Some states like Maharashtra allow registration at a lower market value than Ready Reckoner Rate or Circle Rate. The rule is that Stamp Duty and Registration Charges should be paid on higher of two values i.e. Market Value or Circle Rate. In Maharashtra, Circle Rate is known as Ready Reckoner Rate. If Mr. Sanjay does not want any hassle or delay in a transaction then he can happily mention market value i.e. 70 Lac in Sale Deed. He can pay Stamp Duty as per circle rate i.e. 1 Cr. In this scenario, he i.e. buyer will be at a financial loss. Assuming average stamp duty of 6% and Registration Charges at 1% i.e. total 7%. Sanjay will pay an additional amount of 2.1 lac i.e. 7% of 30 Lac towards stamp duty and registration charges. It’s a financial loss of 2.1 Lac and may increase if the difference between circle rate and market value is wide.

(iii) Option C: Appeal to Sub-Registrar to charge Stamp Duty and Registration Charges at Market Value

Hardly anyone exercises this option due to delays and perceived hassles. Depending on the local state stamp act, at the time of registration you have the option to keep the registration of Sale Deed pending if you don’t agree with circle rate. In short, if circle rate is more than market value then you can exercise an option that you are not willing to pay stamp duty and registration charges as decided by the Sub Registrar. In this case, Sanjay will appeal that Market value of his property is 70 lac but circle rate is 1 Cr. Therefore, he will request sub-registrar to charge stamp duty at 70 Lac instead of 1 Cr. His case will be referred to Deputy Commissioner (Valuation). If Deputy Commissioner agrees with the justification then he will grant permission to register property at a value lower than circle rate.

Another reason why buyers don’t opt for option C is because most of the properties are on Home Loan. Immediately after registration, the original sale deed is handed over to the bank or housing finance company. If the buyer will appeal for lower stamp duty then registration of sale deed will be pending till the matter is decided. In this case, bank or HFC may not agree for the delay in handing over of original sale deed. Also, the seller may not agree to wait for final disbursement till the appeal is decided by the Sub-Registrar office.

Concluding Remarks: From a buyers perspective, option C is the best option but may not be feasible due to operational difficulties. As a buyer, if you exercise option A or option B then it may create tax related issue or financial loss. In case, circle rate is less than market value then you should always discuss the matter in advance with the seller. With a slowdown in real estate sector, the scenario of Circle Rate more than Market Value is here to stay for long time.

Copyright © Nitin Bhatia. All Rights Reserved.

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PARTHIK FADIA
PARTHIK FADIA
8 years ago

Hi Nittin.
Greetings for the day.

I have bought an under construction property in mumbai in 2011.
And yet registration has not been done.
The ready reckoner rate has gone up. Now can I register the flat at the price I booked.

Thank you.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  PARTHIK FADIA

You can appeal to sub register to allow registration at old ready reckoner rate.

Bhomraj Tiwari
Bhomraj Tiwari
8 years ago

Dear sir…
I m selling a property @ 700/sqft where circle rate of the property is 883/sqft..now my question is that the capital gain tax will be applicable on circle rate or I can make it applicable on selling rate by showing transation of 700/sqft in my sale deed and if I do so will byer be effected for any kind of tax because stamp duty cannot be less than circle rate..

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bhomraj Tiwari

Capital gain tax will be on consideration value i.e. actual sale price. There will not be any tax related issue.

Vinod
Vinod
8 years ago

Dear Sir,
Your site and posts on this are really very clear to understand.
I also need your guidance.
I am in a discussion of a deal for re-sale flat. As per Circle rate, the valuation is more than the deal value.
For example we are having a deal for flat in Pune Maharashtra for 50 lacs (Market / agreement Value) and as per circle rate the value for property coming upto 75 lacs.
1. Will there be any income tax applicable on me as buyer for the difference value 25 lacs ?
2. Does this value (25 lacs) will be considered as my profit income from other source ?
3. What is the way to save income tax in this situation as a buyer ?
Please provide your guidance so that I can proceed with the deal.
Thanks & Regards
Vinod

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Vinod

I am assuming that you will be paying stamp duty on circle rate. As i suggested in my post that you can also appeal to sub-registrar to consider lower value i.e. market value for stamp duty.

1. No
2. No
3. NA

Girish Sangwani
Girish Sangwani
8 years ago
Reply to  Vinod

Difference

Girish Sangwani
Girish Sangwani
8 years ago

As per my understanding, in case the circle rate is higher than agreement value, the difference between circle rate & agreement rate is taxable as income from other sources as per sec 56(2)(vii) of the IT act.

Nitin Bhatia
Nitin Bhatia
8 years ago

Your understanding is correct but as i mentioned in my post and in trail comment also that buyer can appeal to sub-registrar office to consider lower value. The trail reply is based on this fact that sub-registrar will allow to register property at lower value therefore provisions of sec 56(2)(vii) of the IT act will not be applicable in this case.

On the contrary, even if the property is registered at lower value, the buyer can dispute the provisions of sec 56(2)(vii) of the IT act as it is double taxation. In this case, seller will calculate capital gain on 75 lac u/s 43CA whereas he is selling it for 50 lacs therefore capital gain tax is paid by the seller on difference between stamp duty value and consideration value. Now if the buyer is clubbing same 25 lacs as income from other sources then there is a double taxation on same amount which can be challenged by the buyer. The demand of tax on 25 lacs from a buyer will not stand on grounds of double taxation as there is an anomaly in the IT act.

Based on this ground, clubbing of 25 lacs as income from other sources by the buyer is not justified.

Raghav
Raghav
8 years ago

Dear Sir,

I have been a regular visitor of your website and have gained immensely from it.
I have a query regarding a property purchase ,

The seller had purchased the property last year and paid Stamp Duty on the Circle Rate .So the effective cost to him is the Circle rate + Stamp Duty on the same.

Now , The Seller is agreeing to Sell the property At Circle rate * Size of property but the Property Dealer is saying that i will have to pay Stamp Duty on Circle rate * Size of property + Stamp Duty paid by the seller even though i will be paying him only at Circle rate.

This property is in the state of Haryana

1. I am confused if on account of Registrar considering the Stamp duty as part of property value will have implication on me in terms of Income from other sources , even though i will pay circle rate ?

2. Can the registrar force to pay duty on such value he deems to be the value even if i have already paid circle rate?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Raghav

1. Stamp duty should not be included in cost of property
2. No

sanjay kumar
sanjay kumar
8 years ago

how can i validate the circle rate? i think the developer is quoting high circle rate, because other properties nearby this layout have 40% less price

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  sanjay kumar

You may check from local sub registrar office.

Chetan Suryawanshi
Chetan Suryawanshi
8 years ago

Hello Sir,

Greetings for the day.

I m buying a property @ basic cost of 24.5 lakh(market value) considering psf rate in mumbai(ambernath) , where circle rate of the property is 28.3lakh. Now my question is that the,

1. Can is it possible to include 2 lakh developement charge in market value i.e. 24.5+2=26.5 ?

2. Can is it possible to include additional 1.73 lakh for stamp duty and resistration charges in the market value by paying stamp duty and resistration charges to builder in cheque??
3. please giude me or suggest any option?
Regards,
Chetan

Nitin Bhatia
Nitin Bhatia
8 years ago

1. Yes
2. Yes

Surinder
Surinder
8 years ago

Hi,

I have purchased a plot of 237 sqyd in Haryana at rate of
Rs. 6000/sqyd (Total 1422000). While the circle rate is Rs. 12000/sqyd.

Seller wants to register the sales deed with value of 1422000
and stamp duty of Rs. 171000 (6% on circle rate for husband and wife jointly).

Will there be any problem to me as buyer, if sales deed is registered
as per these values.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Surinder

No

Surinder Singh
Surinder Singh
8 years ago
Reply to  Nitin Bhatia

Thanks a lot Sir

sudhakar sharma
sudhakar sharma
8 years ago

Hi Nitin,

I got possession 2 months before still i haven’t received registry letter from my builder, people in my builder is saying that if you get late registered flat then govt will impose penalty on that.could you please let me know if is their any late registry cluase or what is eta where builder havnet sent registry letter

Nitin Bhatia
Nitin Bhatia
8 years ago

You can register sale deed within 4 months.

chetna gupta
chetna gupta
8 years ago

Hi Nitin, I am a central govt employee and we have purchased a flat in bangalore last year. The flat was registered at Govt guidance value which is comparatively less than the Market value at which we had purchased the flat. Being a govt employee i had to submit my copy of sale deed to my departments which bears the guidance value and not the market value and now my higher officials are raising questions on why i registered the flat at lower rate than what i had originally purchased at. I need to provide them a written explanation of the same. Can you guide us on how to respond to such queries. These official are not from IT department . They are from my own department in which i work. Our sole motive of registering our flat at GV was mere saving of few lakhs which we had to pay extra if we would have gone for MV. Also, almost most of the co – owners of my apartment have registered at GV but unfortunately non of them are in Govt sector so they are not facing this issue. Please help.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  chetna gupta

You have not mentioned whether you availed any loan from your employer or not. Secondly, these queries are verbal or written. Lastly, if it is written then they must have given a reason for objection.

I can comment only after going through the objection note issued by the department.

chetna gupta
chetna gupta
8 years ago
Reply to  Nitin Bhatia

Thanks for the reply Sir.
1. We have not availed any loan from the employer. Partial amount for our flat was paid from our GPF and rest by home loan.
2. Currently these queries are verbal from the Level 1 clerks to whom the documents was submitted. But as per the latter once my documents are moved to higher level then the question on why we choose going for registration of our flat on GV over MV will arise in written.
What i understand is that these submission of documents is only for internal auditing as we had stated the reason for withdrawing amount from GPF for buying the apartment.But not too sure about the process.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  chetna gupta

It seems the clerk is scaring you to seek some bribe. You may ignore his verbal queries and tell him that you will reply to any written memo issued by the department. Also add that you have made 100% payment in white and can produce the receipts as and when required.

chetna gupta
chetna gupta
8 years ago
Reply to  Nitin Bhatia

Thanks sir.

Prasanth
Prasanth
8 years ago

Hi Nitin,

I have seen two plots in Hyderabad. One of the plot comes under gram panchayat and he quoted 4500 per yard. The other one is 2 KM away from this layout with less accessibility, but the builder has claimed 10000 per yard saying that it is a hmda approved layout and he will provide some amenities like BT roads, park etc. My question is whether this price for hmda layout is reasonable? Usually how much high can I pay for approved layouts? What are advantages of approved layout when compared to panchayat land? Please let me know

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Prasanth

Please share the link of google map with location of plot then only i will be able to suggest. Obviously approved layout will command premium.

Prasanth
Prasanth
8 years ago
Reply to  Nitin Bhatia

Hi Nitin,

I was trying to locate the venture on map- will share you once I get it. But at high level, the venture is on warangal highway (NH 163) and is approx 2 KM away from the outer ring road. At this point can u suggest, usually how much high amount (in %) can a builder demand for approved layout when compared with panchyat layout in the same or nearby locality.

Thanks in Advance!

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Prasanth

Unfortunately i am also not able to find out exact location. It seems to be in interior. For the area shortlisted by you, Max premium of approved layout should not be more than 15%-20% from existing market rate.

Prasanth
Prasanth
8 years ago
Reply to  Nitin Bhatia

Thank You very much Nitin.. :-)

Sac
Sac
8 years ago

Hi Nitin
We are finalizing a property which has been sold 6 months back at registry value of 1 crore. However, registry amount as per the circle rate should have been 64 lacs.
Current owner got registry done for 1 crore since he needed loan of around same amount. It is to note that the market value of this property is lower than 1 crore.
Now, we are in dilemma whether we can get registry done at 85 lacs, higher than the circle rate and lower than the current registry value i.e. 1 crore.

Please let me know if any issue can arise from Income tax department or Revenue department assuming the revenue officer (Tehsildar) has agreed at 85lacs.
Regards

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Sac

It is not clear how much you are paying for same.

Mithil
Mithil
8 years ago

Dear Nitin,
I have purchased flat 700 Sqf market value is 4300 total amount to be stamp duty by builder 30,10,000 full white… Registration. Charge 2,10,000…loan already sanctioned of 22.50 lacs by bank, whenever. Govt value is less than agreement value, can I register the property? Their are no problems with the bank

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Mithil

You can register but depending on location, the stamp duty charged is higher of market value or govt value therefore practically there is no benefit of registration at low value. If stamp duty is lower of two then it is beneficial.

Bhupendra Kumar
Bhupendra Kumar
8 years ago

Dear Nitin Bhatia,
I am planning to buy a plot from Ansal landmark in meerut @9000/- sqm while the circle rate is Rs.12500/- per sqm. My query is weather I have to pay income tax on difference of rates i.e. Rs.12500 – Rs. 9000 = Rs.3500. or not. Further I would like to mention that land under consideration is alloted by MDA to Ansal and after developing Ansal is allotting it to customers but plot is not registered in the name of customer, but whenever the process will start Ansal will register in the name of final buyer of the plot.
thanks in advance,
regards
Bhupendra

Nitin Bhatia
Nitin Bhatia
8 years ago

There is a ambiguity whether you need to pay tax on difference amount. You need to check the agreement between MDA and Ansal for more clarity. It is possible that plot is directly registered in the buyers name.

Bhupendra Kumar
Bhupendra Kumar
8 years ago
Reply to  Nitin Bhatia

Dear Nitin Bhatia,
1st of all thanks for your kind & quick attention. Further I would like to clear it that in the registry documents Ansal as a seller will do the registry in the name of last buyer in the chain.
regards,
Bhupendra

Nitin Bhatia
Nitin Bhatia
8 years ago

That’s right process.

Mahesh
Mahesh
8 years ago

Sir,

I have purchased a flat in 1990 for 2 lakhs and intend to sell in April
2016. The actual selling price is about 18 lakhs whereas it is 21 Lakhs as per
the value estimated by the registrar.

Q1) In this case, which amount will be taken to compute capital gain as per
index?

As per the index, suppose the capital gain comes about 7L, and I would like
to put in capital gain account (CPA) for a while.

Q2) What is last date by which I have to put in CPA? Is it July 2016 or July
2017 (the date of filing tax-return)?

Q3) How much I have to put in CPA is it entire sale value (18L) or only gain
part (7L)?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Mahesh

1. Please check following post to calculate capital gain
https://www.nitinbhatia.in/personal-finance/capital-gain/
2. July 2017
3. Only capital gain

SHOBHIT JAIN
SHOBHIT JAIN
8 years ago

Dear Nitin Bhatia

i had purchased a flat in noida for rs 52 lac. this was a transfer of allotment directly from the builder and i had paid the original alottee 52 lacs that he had paid to the builder at that time the flat had not been registered in the original laottees name and afterwards the registration was done by the builder directly in my name. the registration papers showed the consideration value as 52 lacs and market value as 75 lacs(the circle rate at time of registration). the stamp duty was paid on 75 lacs. now the income tax officer has told me that they will consider that i had purchased the property for 75 lacs only and i will have to pay tax on the additional 23 lacs. what options do i have.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  SHOBHIT JAIN

Technically it is correct. Balance 23L will be treated as income from other sources and you can be taxed on the same. Though you can contest the same on certain grounds.

SHOBHIT JAIN
SHOBHIT JAIN
8 years ago
Reply to  Nitin Bhatia

but when i had purchased the flat the value was rs 52 lac only and construction was going on and after a couple of years when the registration was done after completion the circle rates increased and the market value came to be 75 lac. now. technically i have paid 52 lac which is the actual cost at that time. i have not paid 75 lac. how do i contest this.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  SHOBHIT JAIN

Normally in such cases, sub registrar allow to register the property at 52L. It is builders mistake. If sub register would have allowed registration at 52L then tax on balance 23L could have been avoided.

harshal
harshal
8 years ago
Reply to  Nitin Bhatia

But Sir…. as the deed has been rregistered at 52L but now sale deeds show both amount actual transaction amount (52L) and ready recknor amount (75L).. so hiw this case .. 23L be saved… income tax will consider.. stamp valuation rate instead actual transaction rate.. corect na..? If not.. pl explain..
Also please tell me when the differential amount is taxed to both buyer (income from other source) and seller (capital gain).. how it is accounted.. whether the differential amount is added in buyer books to the purchased property .. otr it is just considered for taxation purpose.. dame for sale .. ?
Pl explain

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  harshal

Sorry i could not understand your query i.e. diff between deed and sale deed as you mentioned in line 1.

harshal
harshal
8 years ago
Reply to  Nitin Bhatia

PLEASE SEE BELOW REVISED QUE ?

But Sir…. as the sale deed has been registered at 52L but the same
shows both the amount actual transaction amount (52L) and ready recknor
amount (75L).. so how in this case .. 23L will be saved… ? and Income tax will also
consider.. stamp valuation rate instead of actual transaction rate.. correct
na..? If not.. pl explain..
Also please tell me when the
differential amount is taxed to both buyer (income from other source)
and seller (capital gain).. how it is accounted.. whether the
differential amount is added in buyer books as cost of the purchased property
.. or it is just considered for taxation purpose (in income tax return).. same for sale what is the treatment.. ?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  harshal

The difference amount of 23L will be taxed as income from other sources to the buyer. On the other hand seller has to consider 75L as a sale value for the calculation of capital gain. The value/s will be considered only for taxation purpose. In book of accounts, actual transaction value will be recorded.

Jay Prakash
Jay Prakash
8 years ago

Dear Nitin Bhatia

is their any penalty for registering the property less then circle rate value ( in Delhi )

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Jay Prakash

I am assuming you are paying stamp duty on circle rate. In this case, you can register at lower value.

M R Khan
M R Khan
8 years ago

Dear Nitin Bhatiya
I have purchased a land on 13 lac but the circle rate is 20 lac.i have paid stamp duty on 20 lac.will i have pay tax on 7 lac?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  M R Khan

Yes, it will be treated as income from other sources but you can challenge the same depending on certain conditions.

Neeschey Dixit
Neeschey Dixit
8 years ago

whats position in delhi?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Neeschey Dixit

Sorry i could not understand your query.

Ajay Dasi
Ajay Dasi
8 years ago

Hi, under option B’ what will be the tax implications on buyer and seller, from income tax point of view

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Ajay Dasi

It depends whether property value is more than circle rate or less than circle rate. Secondly, how the money is accounted for entire transaction.

Rajat Mendiratta
Rajat Mendiratta
8 years ago

Hi , Pretty simply put by you! Two questions; 1. What about income tax dept (Under section 56(2) (vii) wherein the seller will be charged capital gain with base as circle rate. 2. Whether Delhi govt also allows basement sale( which valued at same circle rate as superstructure) on Market rate even though the buyer agrees to pay stamp duty on circle rate.
regards (seller)

Nitin Bhatia
Nitin Bhatia
8 years ago

1. It is dual taxation. Seller is charged capital gain on circle rate whereas difference between Circle Rate and Consideration value is taxed to buyer as income from other sources.

2. Yes. It is allowed. The taxation will be as i shared in point no 1.

Rajat Mendiratta
Rajat Mendiratta
8 years ago

Ps the Circle rate is 25% higher than the Market value of the basement

Nitin Bhatia
Nitin Bhatia
8 years ago

Please check trail comment for my inputs.

Rajat Mendiratta
Rajat Mendiratta
8 years ago

PPs; Is the CPI for individual same as that for a partnership firm for indexation

Nitin Bhatia
Nitin Bhatia
8 years ago

The Cost Inflation Index is same.

Bad
Bad
8 years ago

Dear Sir

Firstly thank you for all the valuable information here and in your other articles also.
I have a commercial property in Anand niketan in Delhi (A category) where the circle rate is considerably higher than market value. I understand that the stamp duty/ reg cost will have to be paid on the circle rate by the buyer.
1. Can the sale deed be registered at the lower market value which happens to be the actual value? In layman terms is the transaction at market value valid?
2. Is the capital gains tax then calculated on the market value or circle rate?

Thank you!

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bad

1. It is possible. The difference between market value and circle rate will be taxed to buyer as income from other sources.
2. Circle Rate

vibhavagarwal
vibhavagarwal
8 years ago

Hello sir,

If I am selling my property prior to registration, will I be charged capital gain tax – given that the circle rate is higher than the selling price?

Regards

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vibhavagarwal

For the purpose of capital gain tax calculation, the circle rate will be considered as sale price of the property.

Sp Singh
Sp Singh
8 years ago

Where to get authentic information about the Market Price (let us say Mohali/ Aerocity) for say year 2011-12, which may be valid as evidence in court too? Please advise.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Sp Singh

You may get it from Sub Registrar office.

Nutan Sarmalkar
Nutan Sarmalkar
8 years ago

Hello,
I had a query regarding this property I have purchased which is a plot of 13 Guntha with a 700 sqft. old house in Shirgaon Village, Palghar Dist. Maharashtra at the rate of 29,50,000 and paid stamp duty of 306,250 on the circle value of the property which is about 60 lakhs.
I wanted to know if there will be any problem to me as a buyer and what is the rule for such transactions in Maharashtra.
I needed more information on this subject as I have received a query from the IT office regarding this as this property was purchased against and after selling my house.
I have to now submit the papers for this house as I have purchased this against selling a house.
So do you think there is any sort of issue that we would face in this case as we have undervalued this plot.

Would appreciate the help and information on this.

Ronak Sharma
Ronak Sharma
8 years ago

Hello,
I had a query regarding this property I have purchased which is a plot of 13 Guntha with a 700 sqft. old house in Shirgaon Village, Palghar Dist. Maharashtra at the rate of 29,50,000 and paid stamp duty of 306,250 on the circle value of the property which is about 60 lakhs.
I wanted to know if there will be any problem to me as a buyer and what is the rule for such transactions in Maharashtra.
I needed more information on this subject as I have received a query from the IT office regarding this as this property was purchased against and after selling my house.
I have to now submit the papers for this house as I have purchased this against selling a house.
So do you think there is any sort of issue that we would face in this case as we have undervalued this plot.

Would appreciate the help and information on this.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Ronak Sharma

The diff amount i.e. 60L minus 29.50L will be taxed as income from other sources. The second tax implication can be on capital gain tax front. As i have not seen IT notice therefore cannot comment.

Little Idiot
Little Idiot
8 years ago

Hello Sir,
I am in a difficult situation as I am interested in a property in Haryana where the market value is about Rs 40 Lakhs while circle value is Rs 45 Lakhs..Option A is applicable and I am not sure if Haryana allows sales and purchase below circle rate..In such a case as you said only Option C could be invoked which is almost impossible for me to consider because of the practical difficulties…

Now I have only option of buying at Rs 40 Lakhs and add Rs 5 Lakhs of income and pay tax of Rs 1.5 Lakhs. Alternately, can I make a sale agreement of Rs 45 Lakhs with the seller and get Rs 5 Lakhs back from him in cash so as the circle rate and sale agreement remains the same..

I hope that doesn’t invoke the scrutiny from IT officials as even if I pay tax of Rs 1.5 Lakhs; assessing officer may consider that I paid Rs 5 Lakhs in Black to the seller..

Which is better as I don’t want to meet AO because of this and face unnecessary harassment. I think that the case of circle rate amount and purchase amount being almost same has lesser chances in coming in IT scrutiny..

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Little Idiot

It is better to buy the property at 40L only and pay stamp duty on 45L. You can declare 5L as income from other sources and pay tax income tax on the same.

D. Myepal Singh RATHOD
D. Myepal Singh RATHOD
8 years ago

Hello Sir,
Read through few of your articles & found them very usefull to understand.

I would like to have further clarity with regard to the few doubts,
1. When the circle value is more than Market value and the registration done at Market value but by paying stamp duty on Circle value. Will there be Income from other source taxable for the buyer as he has pur @ MV but paid duty on circle value?
&
will the capital gain computed for the seller by taking MV or Circle value as the sale in agreement specifies MV as consideration for sale.

2. In State of Tamil Nadu there is stamp duty & registration charges on both registration of UDS & registration of Construction agreement. In one case, the UDS rate psf decided by the construction company was Rs 3000 & the other cost towards construction was Rs.75Lakhs. while going for registration the specified psf rate was known to be Rs 4000 now bcz the total consideration towards flat is fixed can the company increase cost for registration of land by Rs1000 psf and reduce the construction cost by the same amt and go with the registration. What will be the impact of the same on the sale done by the co. and the purchase made by the individual?

Thank U in advance.

Nitin Bhatia
Nitin Bhatia
8 years ago

1. The diff amount will be taxed as income from other sources to the buyer. Seller will calculate capital gain tax on Circle Rate.
2. There should be consistency. Cancel all the previously signed documents. The value or amount should be same in all the documents. The value cannot be changed just for the registration purpose.

subhash kejriwal
subhash kejriwal
8 years ago

I have purchase a ready flat for 14.50 lacs in april-2011, I have paid 9.50 lacs at the time of booking. Balance & full & final payment made in February -2012 but flat registrations in January-2014. At the time of registry circle rate of flat Rs.20.36 lacs.
As per income tax wanted tax of RS.5,86,000.00 (Diff of Rs.20.36-Rs.14.50).
Pl clarify ?

Nitin Bhatia
Nitin Bhatia
7 years ago

The demand is correct. The difference between circle rate and property price at the time of registration is taxed as income from other sources.

ritesh14j
ritesh14j
8 years ago

Hello Sir,
I am planning to purchase a flat in Kolkata, New Town area. It is an unregistered property and seller(allotee) will be transferring the property in my name. I made a deal for the property at Rs.63.5 lacs. Now I have a concern on which value the property will get stamped and registered. Currently I don’t know what is the circle rate it may be higher or lower. But the broker is saying the property will not be registered at the circle rate or sale deed value but it will be registered at the first allotment value i.e. 40 lacs which the builder has allotted to the original allotee. Now my doubt is there any provision in the law where we can do it. Can I prepare the sale deed at Rs.63.5 lacs and pay registration charges on 40 lacs. Will there be any income tax liability on me?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ritesh14j

I doubt it will be registered at 40L. You may check directly with the sub registrar office. Also check circle rate. The income tax liability is dependent on circle rate.

ritesh14j
ritesh14j
7 years ago
Reply to  Nitin Bhatia

Sir,

What if the circle rate is higher than the purchase amount and I do the registry for the property at the circle rate. So in that case also will be any issue or any income tax liability on me?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ritesh14j

It is HIGH RISK..Suppose circle rate is Rs 100 and purchase price is Rs 80. You will pay Rs 80 to seller and mention Rs 100 in the sale deed. A seller may demand Rs 20 in future and you will not have any choice but to pay.

ritesh14j
ritesh14j
7 years ago
Reply to  Nitin Bhatia

Sir,

What if I make an agreement and pay to seller Rs.60 Lacs and registered the property at Rs.40 Lacs. I checked with the builder and there is a provision given by the government where I can register the transferred property at first allotment value i.e. Rs.40 lacs whatever the circle rate may be. Here I have also checked as per circle rate value is also coming to around Rs.60 lacs. Is there any consequences here?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ritesh14j

I don’t think so.

ritesh14j
ritesh14j
7 years ago
Reply to  Nitin Bhatia

Sir as I said I am purchasing the property at 60 lacs and registration is done by developer at 40 lacs so should I make only one agreement of 60 lacs showing against cost of the property or 2 agreements one for 40 lacs for cost and balance 20 lacs for transfer of rights in the property with the seller?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ritesh14j

You have not mentioned whether you signed sale and construction agreement with the builder or not.

ritesh14j
ritesh14j
7 years ago
Reply to  Nitin Bhatia

I have not yet signe

ritesh14j
ritesh14j
7 years ago
Reply to  Nitin Bhatia

I have not yet signed the sale

ritesh14j
ritesh14j
7 years ago
Reply to  Nitin Bhatia

I have not yet signed d

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ritesh14j

If my understanding is correct you are buying a resale under construction property. In this case, you need to sign tri-party assignment agreement between you, seller and the developer.

vignesh
vignesh
8 years ago

Hello Sir,
I have finalized a house property deal for 81lakhs in Chennai, but the circle rate is 93 lakhs for that property. I came to know apart from added registration charges and stamp duty, we have to pay additional income tax for the difference in the rates. Is it mandatory. On what basis I can get exempt from additional taxes.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  vignesh

12L will be taxed as income from other sources. There is no escape.

R. Srinivasan
R. Srinivasan
7 years ago

I have a piece of farm land whose guideline value is 9.5 Lakhs per ground(2400 sq.ft) while the market value is 6 Lakhs per ground. I want to sell this land. What are my options?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  R. Srinivasan

In my opinion, if you are not in urgent need of money then you should wait for market conditions to improve.

vinay chunduri
vinay chunduri
7 years ago

Hi Sir, I purchased a under construction flat in hyderabad for Rs 50 Lacs by taking bank loan in 2015 and the flat is not registered till date . We are planning to sell a land property which is in the name of my father and wants to close the bank loan by using the sale proceeds to avoid LTCG and register the Hyderabad flat in my father name, is it possible to avoid.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  vinay chunduri

It is not possible as the property/loan is in your name.

Mayank
Mayank
7 years ago

Hello sir,

I need home loan of 40 but on paper the registry is of 25 .so can I get a loan of 40 as the property is of 65.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Mayank

Your query is not clear to me

Santosh kumar
Santosh kumar
7 years ago

Hi Nitin ji,
Recently I bought a residential plot in agreed amt ie 15 lacs n the circle rate was 39 lacs. Seller bought this land in 1994 in 30k. It was a agriculture land when agreement done. Later we diverted it on our own interest before registry. I paid stamp duty on circle rate n pmt done to seller through cheque n rtgs in three parts. Deal was done on feb16 n registry on aug month. Now my queries are:
1) both of us will be liable of tax on difference amt ie 24 lacs? Or seller will be taxed for capital gain only? Seller has invested 40% in national bonds to save tax, will this really help him.

2) Somebody advised me to get the re-valuation done for the plot through govt approved valuer as a precautionery measure if i get notice from IT dept. Will this help?

3) One other plot deal was done 2 months back with the same condition near by my plot in the same area. Will this help me to challenge IT if notice comes to me?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Santosh kumar

1. You have to pay tax on 24L as income from other sources and seller has to calculate capital gain tax on 39L.
2. No. It will not help. You could have appealed to sub-registrar and allow the registration at 15L.
3. No

Santosh kumar
Santosh kumar
7 years ago

In chhattisgarh, forgot to mention that.

Vishwas Gupta
Vishwas Gupta
7 years ago

Nitin sir,
what if the seller is “Builder/ Developer”, in case if he sells the flats’ at below the market value price. ?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vishwas Gupta

The rule is same for both Individual and company.

Vishwas Gupta
Vishwas Gupta
7 years ago

Nitin sir,
what if the seller is “Builder/ Developer”, in case if he sells the flats’, held as stock, at below the market value price. ?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vishwas Gupta

Nothing much can be done. He can sell at any price.

AKG
AKG
7 years ago

Dear Sir,

I hv booked a flat in 2013 with an agreement of total cost 26,00,000 lacs. Now at the time of registry, as per current circle rate the total vale is cumming 30,00,000 lacs.

Means, Circle value is more than agreement cost. I am ready to pay the stamp duty to government as per current circle rate. But, Builder is asking for the difference amount 4 lacs to pay him , saying that as per 43CA Circular of income tax declaration scheme 2016 we hv to show the income and hv to pay tax.

What shall i do inthe above circumstances pls guide.

Thanks,

AKG

09431927150
a_shish04@rediffmail.com

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  AKG

Builder is misleading you.

Ashish Gupta
Ashish Gupta
7 years ago

Dear Sir,

I hv booked a flat in 2013 with an agreement of total
cost 26,00,000 lacs. Now at the time of registry, as per current circle
rate the total vale is cumming 30,00,000 lacs.

Means, Circle
value is more than agreement cost. I am ready to pay the stamp duty to
government as per current circle rate. But, Builder is asking for the
difference amount 4 lacs to pay him , saying that as per 43CA Circular
of income tax declaration scheme 2016 we hv to show the income and hv to
pay tax.

What shall i do inthe above circumstances pls guide.

Thanks,

AKG
09431927150

Claudina
Claudina
7 years ago

My parents bought a communidade property from someone 10 years ago but on final possesion it was mentioned that property is not transferable to anyone before 10 years. Now we have the said permission from communidade to transfer the land in my parents name. 10 years ago the agreed sale price was 9 lakhs for which agreement for sale was made. Now the current market price as per government notified rate is 20 lakhs. Is there any problem if we show sale price as 9 lakhs?, but I understand that we have to pay stamp duty and registration charges on 20 lakhs. But instead of showing any bogus transaction, isnt it wise and legal to show 9 lakhs as sale price in the deed of sale.? We are Hindu and bought a communidade property from a christian family. Please help us clear our doubt.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Claudina

You can register property at 9L but balance 11L i.e. 20L minus 9L will be taxed in the hands of your parents as income from other sources.

Reg rules related to property transfer in Goa, you may check with the local property lawyer.

Pradeep
Pradeep
7 years ago

Hi Sir,
I am planning to buy a villa plot in bangalore where guidance value is incorrectly set by the officials assuming the plot as villa house and so doubled the guidance value in their records from beginning of march 2016. They have not corrected it yet. which means – the plot guidance value must be around 3500rs./sqft but the value is set as 7000 rs/sqft. If that is not changed, and if I go and register the plot, what would the tax implications?

Here is the example: for a 1000 sqft plot, its sale cost as per market value of 3500 rs/sqft is 3500000rs. But since there is a high guidance value, i must register the site for 7000000rs – which means double the resgitration and stamp duty values. Apart from this – as per sec 50C(as per your article) TDS must be assumed as 1% of 7000000 Rs, and also Buyer must consider the tax payment of difference of these two amounts(i.e., 7000000 – 3500000) and then show that as ‘income from other sources’. I believe this is all unreasonable, as there is an assumed mistake from officials, so what do you suggest and please confirm if the tax implications are correct as per my understanding under the event of registering the property if that is not fixed/reevaluated.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Pradeep

Your understanding is correct. TDS will be deducted on 35L.

Ashish Gupta
Ashish Gupta
7 years ago

Dear Sir,

I hv booked a flat in 2013 with an agreement of total cost 26,00,000 lacs. Now at the time of registry as on date, as per current circle rate the total vale is comming 30,00,000 lacs.

Means, Circle value is more than agreement cost. I am ready to pay the stamp duty to
government as per current circle rate. But, Builder is saying for tax liability on the difference amount (30lac-26lac) 4 lacs to purchaser as per 43CA Circular of income tax declaration scheme 2016 .

What shall i do in the above circumstances pls guide.

Thanks,

AKG

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Ashish Gupta

Builder is misleading you. Sub registrar can allow registration at 26L. Please go through my post.

Ashish Gupta
Ashish Gupta
7 years ago

Dear Sir

Flat registry on super built up or Carpet area which is best/correct practice.

In case of registry with Carpet Area, Is there is any legal /practical problem in future regarding use of common area/ facilities/ amenities / parking / lift etc as one has paid stamp duty only of Carpet Area, not for Super Built up area of the flat. Kindly suggest…..

Regards,

AKG

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Ashish Gupta

You have not mentioned the reason for considering carpet area for registration. Also month of purchase and whether you are buying from builder or resale.

Ashish Gupta
Ashish Gupta
7 years ago
Reply to  Nitin Bhatia

Dear Sir,

Thanks for yr kind response.

As desired, following are the information-
Super built up area – 1655 sft
Carpet area – 1244
Date of agreement – 16.09.2012

I am buying a new flat from builder (foundation started in Nov`2012) now it is in completion stage.
——————————————

I hv booked a flat in 2013 with an agreement of total cost 26,00,000
lacs. Now at the time of registry as on date, as per current circle rate
the total vale is comming 30,00,000 lacs.

Means, Circle value is more than agreement cost. I am ready to pay the stamp duty to government as per current circle rate.

But, Builder is saying for tax liability on the difference amount (30lac-26lac) 4 lacs to purchaser as per 43CA Circular of income tax declaration scheme 2016 .

What shall i do in the above circumstances pls guide.

Thanks,

AKG

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Ashish Gupta

Pay stamp duty on super built up area. You have to declare 4L as income from other sources and pay tax on the same as per your income tax slab.

Omesh Chandra
Omesh Chandra
7 years ago

What happens in the case of leasehold commercial property if circle rate is higher than market rate. There is no registration done , only transfer in builders records and charges paid to them only. An ”agreement to sell” made will reflect the true market value. Will the IT dept be able to raise a claim for IT for the difference. I am a seller. Also, where do we get the exact circle rates for multistoried building for our calculation purposes. Property is in Delhi

Regards

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Omesh Chandra

The Income tax “i.e difference amount will be treated as income from other sources” will be applicable to the buyer not to the seller. You only need to pay capital gain tax. You can get circle rate from the sub registrar office.

ES
ES
7 years ago

Dear sir, we are purchasing a property in noida. we have executed an agreement to sell ,paying 20% of sale agreement amount by cheque at time of execution of deed.The circle rate for the property comes upto 60lakh while we r purchasing it for 47.5 lakhs (all white). What is the best course to follow here? The deed writer has suggested that we need to get it registered at circle rate. Your suggestions wud b highly appreciated.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ES

You need to register the property at circle rate and pay stamp duty & registration charged accordingly. Also, the difference amount i.e. 12.5L will be taxed as income from other sources to you. You need to pay tax on this amount as per your income tax slab.

ES
ES
7 years ago
Reply to  Nitin Bhatia

Why is it that we r being taxed for income from other sources, when infact we r not getting any income. And is there any way to avoid the additional tax burden. Also I would like your opinion on registering., the deed writer is insisting that we pay for stamp paper in cash and go to the noida authority with the full amount in cash (about 3.5 lakhs) and he is strongly advicing against making the payment for stamp paper through RTGS. I am reluctant to carry that big an amount in cash because, If we lost in somehow we wont b able to accumulate that amount for a long time. Could you give your advice on the matter.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ES

1. The difference amount is net income/profit for you therefore it is taxed. Secondly, it is to avoid circulation of black money in the system
2. You can carry DD or Banker’s cheque.

Manish
Manish
7 years ago
Reply to  Nitin Bhatia

What if the difference amount is already taxed (after paying income tax we are saving money into saving account)? So if we are paying again tax then it is double taxation. So we are bound to pay double tax?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Manish

Your query is not clear to me.

Ashish Gupta
Ashish Gupta
7 years ago

Dear Sir

Flat registry on super built up or Carpet area which is best/correct practice at present.

In case of registry with Carpet Area, Is there is any legal /practical problem in future regarding use of common area/ facilities/ amenities / parking / lift etc as one has paid stamp duty only of Carpet Area, not for Super Built up area of the flat. Kindly suggest…..

This has reference to my previous mail. Basic idea is that if one go registry on carpet area, not on super built up area then this will reduce the difference amount ie income from other sources……pl guide.

Regards,

AKG

Ranchi-Jharkhand

Delhi Guy
Delhi Guy
7 years ago

Dear sir, we are selling a property in Delhi for say 1.5cr but the second party wants to pay only 50L in cheque rest in cash and we want to purchase 2 properties in noida, what to do. Is there any problem in selling and buying a property?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Delhi Guy

I will not suggest. 1 Cr will be black money for you.

Delhi Guy
Delhi Guy
7 years ago
Reply to  Nitin Bhatia

What to do. The circle rate is around 40L but the market rate is around 1.5cr.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Delhi Guy

If the seller is not willing accept 1.5 Cr through cheque then you may call off the deal.

Delhi Guy
Delhi Guy
7 years ago
Reply to  Nitin Bhatia

I am the seller and buyer doesn’t want to give the amount in cheque/DD. Second question is “How much tax I have to pay”, “can I reinvest the money in multiple properties”?.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Delhi Guy

To save capital gain tax, you can invest only in one property. The capital gain tax will depend on the calculations.

Saritha Gajbhimkar
Saritha Gajbhimkar
7 years ago

What is the legal approach in the reverse case. i.e., Market value more than Circle rate. Suppose we plan to by a property whose market value is 60L and Circle rate is 25L. Should we get registration done at 25L or 60L considering we pay the entire 60L through cheques.

Manish
Manish
7 years ago

If you are paying 60L through cheques and
Scenario 1: registration is done at Circle/Govt rate 25L then IT can ask seller the justification for difference amount 35L (Seller might justify that he is providing best of the best facility bla bla bla, so he is selling at higher price.)
Scenario 2: registration is done at Market Rate 60L then there is no question arises if registrar is ok with registering property at Market rate which is higher then Govt rate.

Nitin Bhatia
Nitin Bhatia
7 years ago

It is perfectly okay to register at either 25L or 60L.

Saritha Gajbhimkar
Saritha Gajbhimkar
7 years ago

Thanks for the reply. Considering the present situation after demonetization, shall we go ahead and purchase the plot or wait for 6 months and observe the market. Is there any possibility of land rates going down?

Nitin Bhatia
Nitin Bhatia
7 years ago

It depends on city and pocket you are buying. Please check my following post
https://www.nitinbhatia.in/real-estate/demonetisation-property-market/

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