Nowadays, the circle rates are higher than the selling price of the property. I need to sell a property which will only fetch Rs 42 lakh, whereas the circle rate is Rs. 45 lakh. Can I make a sale at Rs. 42 lakh and do the registration and service tax for Rs. 45 lakh? In such a case, what will be the amount on which I will have to pay the capital gains tax?
Answer: Under the income tax laws, where the value mentioned in the agreement is lower than the circle rate or the stamp duty valuation, the value of the sale consideration shall be deemed as per the stamp duly valuation or the circle rate, and the capital gains shall also be computed accordingly.
In your case, even if you have received only Rs. 42 lakh, you will still have to pay the tax at Rs. 45 lakh. However, if you request the assessing officer, the officer can refer the matter to a valuation officer, and if the value determined by the valuation officer is lower than the circle rate, your tax liability will reduce to that extent.
If the value determined by the valuation officer is higher than the circle rate, do note that your tax liability is still restricted on the circle rate/stamp duty rates. Alternatively, you can ask the buyer to contest the stamp duty valuation by way of an appeal before the stamp duty authorities. The valuation as determined on such decision of appeal by stamp duty authorities will substitute the original stamp duty valuation.
I stayed in a chawl room for almost 35 years in Mumbai. In 2010, I got a residential flat in a tower after redevelopment of the chawl. I also additionally paid Rs 2 lakh to the builder for the flat. I also had to pay stamp duty and registration charges for the flat. Now, I propose to sell this flat for Rs. 1.95 crore. What amount should I take as the cost of the flat for computation of capital gains? Will the Rs 2 lakh paid to the builder along with the stamp duty and registration charges be taken in the indexed cost of my flat?
The rooms in a chawl in Mumbai are generally held on a tenancy basis, and not on an ownership basis. So, what you had was a tenancy right in the room occupied by you in the chawl. Since you had received a flat in the tower for surrendering your tenancy rights, this amounted to availing exemption under Section 54F at that time.
I am sure you would have disclosed the same in your income-tax return (ITR) filed for the relevant year in case you were filing your ITR. In case you were not required to file an ITR, you still did not have any tax liability at that time. For computing capital gains on sale of this flat now, you have to take the market value of the flat on the date on which you got the possession as your cost of acquisition. For ascertaining the market value of the flat, you can obtain valuation report from a registered valuer. Alternatively, you can take the stamp duty value of the flat on that date.
You cannot add the Rs. 2 lakh paid to the builder again in the cost, as the fair market value of the flat is inclusive of the additional amount paid by you. The aggregate of fair market value and stamp duty and registration charges as indexed and reduced from the sale consideration is your taxable long-term
capital gains (LTCGs) from sale of the present flat.
For computation of LTCGs, we are getting a valuation done as on April 1, 2001 on a flat acquired by my father in Chennai in 1999. It is being done by a registered valuer. For this purpose, the valuer has taken the guideline value as per the sub-registrar as on April 1, 2001. He has added 13 per cent for the registration fee and stamp duty applicable as on April 1, 2001 in Chennai. I wanted your advice on whether the 13 per cent can be added to the guideline value of the land for arriving at the cost value of the land.
For computing LTCGs, you will have to reduce the indexed cost from the net sale consideration received. The indexed cost of an asset is computed by applying the cost inflation index, announced for each year by the central government, to your cost of acquisition of such asset. In case the asset being sold was bought or acquired before April 1, 2001, the income tax laws will allow you to adopt the fair market value of the property as on April 1, 2001. The income tax laws further provide that the fair market value as on April 1, 2001 cannot be higher than the stamp duty valuation of the property as on that date.
Do note that the stamp duty value is also referred to as the circle rate or guidelines value in some parts of India. Since the tax laws clearly provide that the fair market value as on April 1, 2001 is to be adopted as the cost of acquisition for assets acquired prior to that date, it cannot be more than the stamp duty value.
So, even if the valuer gives you the valuation report with guidelines value as added by 13 per cent of the stamp duty and registration charges, you will be able to take the guideline value only as your cost of acquisition for computing LTCGs.
The author is a tax and investment expert
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