Appropriateness of the stamp duty value of the property under income tax laws

In order to arrive at the fair market value of the home ownership, you can either take the stamp duty calculation rates if available, or get a certificate of appraisal from a registered appraiser.

In order to fill the gaps in real estate transactions and avoid litigation, the Income Tax Department compares the valuation of real estate with its valuation of stamp duty. For the levy of stamp duty on property, various state governments offer an annual calculation of property appraisal rates. This is also called circular rates in northern India.

In this article, I intend to discuss some of the important provisions of income tax laws that refer to the stamp duty valuation of real estate. Let’s discuss.

Property eligible for additional interest benefits

Article 80EEA allows a deduction of up to Rs 1.50 lakh each year for interest on mortgage loans sanctioned between April 1, 2019 and March 31, 2022 for an assessment of stamp duty on residential properties including The valuation does not exceed forty-five lakh rupees. This deduction is only available if the appraised does not own any other real estate on the date of the sanction of the real estate loan.
It can be noted that this deduction is available during the construction period also unlike the deduction under Article 24 (b) which is only available after the completion of construction. However, there is no provision for deferral of this deduction in the event that the income is not sufficient to offset this deduction. The property valuation for this deduction has been calibrated to avoid abuse of this provision where the value of the agreement can be kept at a lower amount just to claim this deduction.

Calculation of long-term capital gains on the disposal of an old residential building

Capital gains are calculated by deducting the acquisition cost from the sale price. For real estate sold after holding for more than two years, you are allowed to increase the acquisition cost by applying a cost inflation index which helps you reduce your tax liability. For property acquired before April 1, 2001, you are allowed to take the fair market value of the home on that date, making the appraisal up to March 31, 2001 tax free in your hands.

In order to arrive at the fair market value of the home ownership, you can either take the stamp duty calculation rates if available, or get a certificate of appraisal from a registered appraiser. People used to get a certificate of appraisal for an amount less than the real fair market value of the property in order to minimize their tax liability. In order to fill this gap and minimize litigation, the law was amended to provide that the fair market value of the property sold must not be less than the stamp duty assessment of the property as of April 1, 2001, if notified. by the state government.

If the value of your deal is less than current stamp duty rates, you are deemed to have received consideration equal to the stamp duty valuation and the difference is taxed as capital gain on top of the capital gain. calculated according to the value of your agreement.

For the buyer of a property

Under tax laws, when property is transferred for no consideration, it is treated as a gift in the hands of the recipient. In other cases, in order to avoid litigation, tax laws provide for a tolerance limit of up to 10% of the value of the agreement. Thus, when ownership is transferred and the consideration is insufficient, more than fifty thousand rupees or an excess difference greater than 10% of the value of the agreement is taxed in the hands of the transferee, unless the transaction is between of the specified parents.

However, if the property is purchased from a developer as the first allotment of the property between November 12, 2020 and June 30, 2021, the buyer benefits from a higher tolerance limit of 20% on the consideration of the sale for properties with a sale consideration of up to Rs 2 crore. The same tolerance limit is also available to a developer when calculating their trading profits. In the case of a developer for the sale of uncovered properties above the tolerance limit remains 10% on the value of the agreement.

From the above discussion it becomes clear that one should be aware of real estate stamp duty valuations when buying / selling property in India.

(The author is a tax and investment expert and can be contacted at [email protected])

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