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The Budget 2018 has allowed a property valuation up to 5% below the circle rate, which is likely to benefit the buyers and sellers to a certain extent. This will come as a tax relief benefit for both the buyers and the sellers. While calculating the capital gains tax and stamp duty, the property can now be valued up to 5% below the circle rates. While announcing the budget, the finance minister said that in transaction of immovable property, no transactions will be made, in case the circle rate is not more than 5% of the consideration.
The head of a prominent real estate company in India stated that the circle rate in the key cities had been increased, which have exceeded the market rates. As a result, a gap has been created the two rates, which was considered as an income for both the seller and the buyer. The finance minister has allowed a gap of 5% between these two rates, which is likely to eliminate the irritant and help in secondary market transactions.
The revenue generated from the real estate sector is collected by the state government by levying stamp duty on the transaction. This is based on the circle rate. The circle rate refers to the minimum value at which the transfer or sales of plots, buildings, commercial property or apartments can take place. This is the price at which the stamp duty is paid by the buyer to the government, when they register the property.
The prices of real estate in India have been languishing, and the actual sales often take place much below the circle rate that is fixed by the government. An immovable property may be sold at a price lower than the circle rate; however, the stamp duty may be levied on the circle rate itself. The difference in sales value and circle rate becomes taxable, and this is applicable both for the seller and the buyer.
Experts are of the opinion, that the capital gains will not be impacted significantly in any of the big cities in India as a result of the move to allow a variation of 5% between the two prices. They have also pointed out that this variation can take place during the transaction of similar properties in the same area due to various factors. These include the location and the shape of the plot. In an attempt to cut down the hardship of genuine transactions in the real estate sector, it has been proposed that no adjustments will made in cases where the difference between these two prices is not more than 5% of the sale under consideration. The amendments are to be coming into effect from 1st April, 2019 and will accordingly be applicable in relation to the assessment year 2019-20, and the subsequent years to come. This is a welcome move from the government and will bolster the real estate sector to a large extent. The buyers and sellers will both benefit when the new norms come into the effect from April 2019.
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