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

When buying or selling a home in India, it’s essential to be aware of the stamp duty valuations.

The Income Tax Department compares the value of a property to its stamp duty value to close loopholes in real estate transactions and avoid litigation. Various state governments provide an annual ready reckoner of rates for the property value to pay stamp duty on it. In north India, this is referred to as circle rates.

Adv. Viraj Ravindra Patil, the finest property lawyer in Navi Mumbai from ParthaSaarathi, will examine some of the critical aspects of income tax laws that pertain to stamp duty valuation of a piece of property in this article.

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Eligible property for additional benefits of interest.

Section 80EEA permits a deduction of up to Rs 1.50 lakh per year for interest on home loans approved between April 1, 2019, and March 31, 2022, for a residential property stamp duty valuation of not more than Rs 45 lakh rupees. This deduction is only eligible if the assessee does not own any other residential property when the home loan is approved.

This deduction is also accessible during the construction period, unlike the deduction under Section 24(b), which is only available after the construction is completed. However, according to Adv, there is no provision for carrying this deduction forward if your income is insufficient to offset it. Viraj Ravindra Patil, a property lawyer in Navi Mumbai, the valuation of property for this deduction, has been benchmarked to avoid misuse of this provision, where the agreement value may be set at a lesser sum only to claim this deduction.

Calculation of long-term capital gains on the sale of an older home

The cost of purchase is subtracted from the sale consideration to determine capital gains. If you sell a dwelling property after more than two years, you can increase the acquisition cost by using a cost inflation index, which lowers your overall tax liability. In the case of property purchased before April 1, 2001, you are entitled to utilize the residence’s fair market value on that date, thereby making the appreciation in your hands tax-free until March 31, 2001.

You can utilize stamp duty reckoner rates if they are available or get a valuation certificate from a registered valuer to determine the fair market value of the house property. To reduce their tax liability, people get a valuer’s certificate for a lesser amount than the property’s actual fair market value. The law was revised to specify that the fair market value of the property sold should not be less than the stamp duty valuation of the property as of April 1, 2001, if reported by the state government, to close this gap and reduce litigation

Suppose the value of your agreement is less than the current stamp duty rates. In that case, you are assumed to have received consideration equivalent to the stamp duty valuation, and the difference is taxed as capital gains in addition to the capital gain computed based on your agreement value.

For property purchasers

When a property is transferred without consideration, it is treated as a gift in the recipient’s hands under tax regulations. In some circumstances, tax regulations provide a tolerance limit of up to 10% of the agreement value to avoid litigation, according to Adv. Viraj Ravindra Patil, a property lawyer in Navi Mumbai, when a property is transferred, and the consideration is insufficient, the higher of fifty thousand rupees or the excess difference over ten percent of the agreement value is taxed in the hands of the transferee except when the transaction is between specified relatives.

If the property has been bought from a developer as the first allotment between November 12, 2020, and June 30, 2021, the buyer has a greater tolerance limit of 20% over the sale consideration for properties with a sale consideration of up to Rs 2 crore. A developer can use the same tolerance limit while calculating his business profits. In the instance of a developer selling properties not covered by the agreement, the tolerance level stays at 10% over the agreement value.

As a result of the preceding discussion, it is evident that while purchasing or selling property in India, one must be aware of the stamp duty valuations of the property.

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