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Sold Property Below Circle Rate, Capital Gains Tax Question - Young Professional

T S Khurana |406 Answers |Ask -Follow

Tax Expert - Answered on Feb 13, 2025

A certified management accountant since 1993, T S Khurana is a fellow member of The Institute of Cost Accountants of India. His areas of expertise are income tax, specifically litigation cases, and GST.

Since the last 21 years, he has also been providing expert advice on financial matters, including investments and diversification of funds, and wealth building in the long term to his clients.
He believes that investment in real estate is the safest way for better returns and wealth generation over a period of time.

A former chairman of the Chandigarh Chapter of Institute of Cost Accountants of India, T S Khurana has also served as member of its technical committee.... more

Asked by Anonymous - Feb 11, 2025Hindi

I have sold an ancestral property below the circle rate, now when I checked with my CA he said the Capital gain tax would be applicable on the property value as per the circle rate and not on the value I received. The property was full of tenants who were living on it before it was purchased by my grandfather and for me it wasn't easy to get rid of them. Is there any way that tax can be saved on the proceeds of the above sale?

Ans: No. You will have to calculate your LTCG based on the Sale Value of Circle Rate only. However, you may plan your tax savings, by investing in another Residential property or by Buying Capital Gain Bonds etc.
Most welcome for any further clarifications. Thanks.

Asked on - Feb 13, 2025 | Answered on Feb 15, 2025

Buyer engaged some valuer who valued this property at 40% of the sale value as per the circle rate, can this valuation be used somehow to reduce the capital gain tax. As per my CA, the capital gain on the property is coming to approximately 1/3 of the amount the buyer paid us.

Ans: 01. Your Sale value will remain as per circle rate & there is no other option.
02. If the Architect/Valuer gives you a certificate of the value of Property as on 01.04.2001, then it will be treated as its Cost & LTCG can be worked out, based on this cost.
03. Any valuation certificate on the date of sale will not help you in any way.
04. It is further suggested that you should not confuse yourself between opinion of 2 professionals. You may follow your CA & settle your problem.
Most welcome for any further clarifications. Thanks.

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Question by Jitendra - Dec 02, 2022Hindi

Dear sir, I seek your advice on the issue of sale of property below Circle Rates and its implications. Our ancestral home in UP constructed by our parents, has to be sold and sale proceeds to be distributed to all beneficiaries as per our mother's will. I am one of the beneficiaries. Say its value as assessed by a Govt Authorised Assessor is Rs. 'X'. Due to subdued Reality Market, location/access issues and other local factors, if it has to be sold at a price X/2, lower than the Circle Rate, then: (a) What are the implications for the buyer? (b) What are the implications for the seller? (c) Can I save Capital Gains tax on my share of sale proceeds if I deposit it in a 'Capital Gains Account' in an authorised bank for the required duration? (d) Alternatively, can I show the sale proceeds against a house that I purchased in Aug 2022 and save Capital Gains tax? The house purchased in Aug 22 is jointly registered in my and my wife's name. However, while I am one of the beneficiaries of the will, my wife is not a beneficiary. (e) Between sub-para (c) and (d) above which option is better? (f) Tax on Capital Gains is charged at a flat rate of 20% or it is charged at the appropriate tax slab?

Ans: By transferring property below stamp duty value, there can be loss to the revenue. Accordingly, to safeguard the same, mainly three provisions exist in the income tax law for the said transactions.

First, seller of property while calculating capital gains has to consider stamp duty value as sale consideration.

Second, buyer will deduct TDS on stamp duty value at the time of making payment to the seller.

Lastly, the difference between sale consideration and stamp duty value will be Income of the Buyer in the year of transfer.

With reference to the Capital Gain Account -- point © -- option of investing in the same is available in case you plan to invest an amount of Long Term Capital Gain earned from a residential property into another residential property and you are unable to utilise money in construction or buying a new property before filing Income Tax Return.

For Point (d), To claim tax exemption for long term capital gain earned on transfer of house property, the seller should purchase a residential house either 1 year before the date of transfer or 2 years after the date of transfer.

In your case, if possession of ancestral home is given within 1 year of taking possession of new property (August 2022); exemption can be claimed.

For point (e), as explained above, Capital Gain Account is not a separate option to save tax. If the amount kept in account is not utilised for acquiring new property within 2 years, the amount kept in the Capital Gain Account will be taxable.

Long term capital gain on property is taxed at 20% plus applicable surcharge and cess.

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