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Business News/ Money / Q&a/  Is high circle rate bad news for home buyers?
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Is high circle rate bad news for home buyers?

As per the provisions of Section 56 of the Income Tax Act, where the stamp duty value (SDV) exceeds the purchase consideration, the difference shall become chargeable to tax in the hands of the purchaser, if such difference exceeds higher of the following amounts: ₹50,000 and an amount equal to 10% of the purchase consideration.

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My mother, who is retired, and I bought an apartment (on resale) in Gurgaon recently. To our surprise, the circle rate was much higher than the expected cost of the property. While the circle rate put the cost of the property at 91 lakh, we bought the apartment at 78 lakh (plus registry cost as per circle rate).

What will be the tax liability for us both?

—Aman Kishore

It is assumed that the property has not been purchased from a relative. As per the provisions of Section 56 of the Income Tax Act, where the stamp duty value (SDV) exceeds the purchase consideration, the difference shall become chargeable to tax in the hands of the purchaser, if such difference exceeds higher of the following amounts: 50,000 and an amount equal to 10% of the purchase consideration.

The said difference shall be taxable in the year of purchase, under the head ‘income from other sources’ at the applicable slab rates for the individual.

In the instant case, the difference between the SDV and the purchase consideration being 13 lakh, is in excess of 10% of the purchase consideration. Thus, this difference shall be taxable in proportion to your respective share in the property.

In case you believe that the valuation adopted by the stamp valuation authorities exceeds the fair market value of the property as on the date of transfer; you may question the same before your jurisdictional assessing officer. In such case, the assessing officer may after due evaluation refer the valuation of the property to a prescribed valuation officer. Where the value ascertained by such valuation officer exceeds the value assessed by the stamp valuation authorities, the value so determined shall be considered as the SDV.

I earned 9.5 lakh for fiscal year 2021-22. Despite using the house rent allowance (HRA), equity linked savings schemes (ELSS) benefits, I had to still forego over 20,000 in taxes. Will part of this be refunded after I file the income tax return (ITR). I have not bought any insurance plan as of now. Will buying the same help?

—Name withheld on request

It is assumed that you are referring to financial year (FY) 2022-23 and not FY 2021-22, as the due dates to file the tax return (both original and revised) for FY 2021-22 have already lapsed and hence, no further benefit of any deduction/exemptions can be claimed.

Assuming you are a salaried individual, if any of the eligible exemptions/deductions were not made earlier and/ or not considered via your payroll withholdings, you still have an option to make those investments prior to the end of the relevant financial year, i.e., 31 March and claim the same from your taxable income, while filing your tax return for FY 2022-23.

Premium payments under a life insurance plan may be eligible as a deduction from your taxable income under Section 80C of the Act, subject to satisfaction of prescribed conditions and overall deduction limit.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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Published: 26 Feb 2023, 11:00 PM IST
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