Tax on Property Transaction beneath Circle Charge: Sec 50C, Sec 56

This text highlights the revenue tax remedy on buy/sale of a property beneath the Stamp Obligation Worth below Part 50C & Part 56(2)(x). Earlier than the explaining the remedy, lets first perceive the which means of Stamp Obligation Worth.

Circle Charge/ Stamp Obligation Worth/ Prepared Reckoner Charge/ Steering Worth

Every State Govt has a pre-decided minimal valuation on which Stamp Obligation is to be paid. This pre-decided minimal valuation is known as Circle Charge. In some states that is additionally referred to as because the Prepared Reckoner Charge or the Steering Worth.

In widespread parlance, additionally it is known as the Stamp Obligation Worth i.e. the speed on which the Stamp Obligation is to be paid.

The Circle Charge differs from locality to locality relying on infrastructure and different associated components.

Though in majority of the instances the property is bought above the circle price, in some instances it could be bought beneath the Circle Charge as effectively. This text emphasizes on the tax remedy of a property transaction beneath the circle price within the palms of the vendor in addition to within the palms of the client.

Part 50C: Tax Therapy within the palms of the Vendor

As per Part 50C if a property is bought beneath the Circle Charge, the circle price of the property can be deemed to be the speed at which property has been bought and capital positive aspects tax can be levied assuming that the property has been bought on the Circle Charge.

Regardless of the consideration for which the property has been bought, if it has been bought for a worth beneath the Circle Charge, the circle price can be assumed to be the Sale Value and Capital Positive aspects Tax can be levied.

Nonetheless, in case the taxpayer claims earlier than the Assessing Officer that the honest market worth of the property is genuinely decrease than the Circle Charge, the Assessing Officer might request the Valuation Officer to conduct a valuation of the property. In case a valuation is carried out by the Valuation Officer and

  1. Worth ascertained by the Valuation Officer is decrease than the Circle Charge: The Worth so ascertained by the Valuation Officer can be deemed to be the Sale Value
  2. Worth ascertained by the Valuation Officer is greater than the Circle Charge: The Circle Charge can be deemed to be the Sale Value.

Thus, from the above it’s clear that if a Reference is made to the Valuation Officer, the sale worth to be thought-about for the aim of Capital Positive aspects can’t be elevated however can solely be decreased.

  • Advisable Learn: Exemption from Long Term Capital Gains Tax

Finances 2016 Modification

In case the place the date of the settlement fixing the quantity of consideration for the switch of immovable property and the date of registration aren’t the identical, the stamp responsibility worth on the date of settlement could also be taken for the needs of computing the total worth of consideration.

This provision shall apply solely in a case the place the quantity of consideration has been paid by the use of an account payee cheque or account payee financial institution draft or on-line switch on or earlier than the date of settlement for the switch of such immovable property.

Part 56(2)(x): Tax remedy within the palms of the client

If a purchaser purchases a property for a worth beneath the Circle Charge and the distinction within the “Value at which the property has been bought” and the “Circle Charge” is greater than Rs. 50,000, such distinction can be assumed to be the revenue of the purchaser and can be chargeable to tax below head Earnings from Different Sources below Part 56(2)(x).

Nonetheless, in case the circle price modifications between the date of settlement and the date of registration, the circle price on the date of settlement might be taken because the sale worth. This exception shall solely apply in instances the place half/full consideration has been paid in any mode apart from money on or earlier than the date of settlement fixing the consideration.

In case a reference has been made to the Valuation Officer below Part 50C, the identical shall be relevant for Part 56(2)(x) as effectively.

Affect of this Modification

Earlier, in case a property was bought beneath the Circle Charge, the tax was levied solely within the palms of the vendor.

However now, on account of this modification, not solely would the sale worth be elevated within the palms of the vendor, however tax can be levied within the palms of the client as effectively.

Thus, this can be a case of double taxation. First, the sale worth within the palms of the client is elevated after which the distinction between the acquisition worth and the circle price is added within the revenue of the client.

 

That is clearly a case of double taxation and signifies that the govt. doesn’t need transactions to be entered into beneath the circle price. The government suspects tax evasion if a transaction is being entered into beneath the circle price and has due to this fact launched such guidelines to discourage transactions beneath the circle price.

Instance of the above provisions

Mr. A bought a property from Mr. B for Rs. 50 Lakhs. The Stamp Obligation Worth of this property is Rs. 60 Lakhs.

Tax Therapy within the palms of Mr. A (Vendor): Rs. 60 Lakhs can be deemed to be the Sale Value and taxed below head “Earnings from Capital Positive aspects”

Tax Therapy within the palms of Mr. B (Purchaser) : Rs 10 Lakhs (i.e. 60 Lakhs – 50 Lakhs) can be deemed as Earnings of the Purchaser and taxed below head “Earnings from Different Sources”

Finances 2018 Modification – Above Sections not relevant for upto 10% Variation

The worth of all properties isn’t precisely estimated by the Circle Charge/ Steering Worth/ Prepared Reckoner Charge and variation can happen between the estimated price and the precise price at which the transaction has been accomplished. This variation could also be due to a number of components like Form of the Property, Location of the Property and many others.

And due to this fact, an modification has been launched in Finances 2020 which says that in case the distinction between the Circle Charge/ Steering Worth/ Prepared Reckoner Charge and the precise transaction worth isn’t greater than 10%, the above Sections i.e. Part 50C and Part 56(2)(x) wouldn’t be relevant.

In easy phrases, if the distinction isn’t greater than 10%, the additions no further tax can be levied within the palms of the neither the client nor the vendor. It is a welcome transfer because it reduces the hardship in case of real property transactions.

This restrict of variation was earlier thought-about as 5% which was elevated to 10% in Finances 2020

Video explaining all of the above Sections

I’ve created a video explaining all of the above talked about sections and the identical is shared beneath on your prepared reference

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