Real estate buyers and sellers to benefit as Union Budget 2018 increases valuation of property upto 5% below circle rate

The Union Budget 2018 has come up with a proposal for tax relief for the real estate buyers and sellers. The property valuation has been increased to 5% below the circle rates for calculating capital gains tax and stamp duty. While announcing the Union Budget 2018, the finance minister announced that no adjustments in respect to transactions in an immovable property will be made where the value of Circle Rate does not exceed 5% of the consideration.

The circle rates in the major cities have been increased and these have become more than the market rate. As a result, a gap has come up between the two rates, which will benefit both the buyers and the sellers. The gap between the two rates will revive the secondary market transactions.

The circle rate refers to the minimum value at which plots can be sold or transferred, or construction of apartments, houses and commercial property can take place. It is the price paid by the buyer for the stamp duty to the government while registering the property.

Presently, when income is taxed from business profits (section 43CA), capital gains (section 50C) and sources (section 56) that arise from the transaction of immovable property, the higher value among sale consideration and stamp duty value is adopted. The difference between the two is taxed as income, both from the seller and the buyer.

 Well, this variation can take place in the same area in the context of similar properties, due to several factors, including the plot or location of the property. In an attempt to reduce the problems in the case of genuine transactions, the Budget has proposed that no adjustments will be made where the difference between the sale consideration and stamp duty value is not more than 5% of the sale consideration.

The amendments will come into effect from 1st April 2019. These will apply in relation to the years 2019-2020, and the following assessment years. Evidently, these policies are likely to enhance the business conditions in the real estate sector, as it will benefit both the buyers and the sellers in the industry.