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Ancestral Property Sale: Base Year Circle Rate?

Financial Planner - Answered on Jul 31, 2024

Anil Rego is the founder of Right Horizons, a financial and wealth management firm. He has 20 years of experience in the field of personal finance.
He’s an expert in income tax and wealth management.
He has completed his CFA/MBA from the ICFAI Business School.... more

Question by Aloke on Jul 30, 2024Hindi

When selling ancestral property will base year circle rate plus indexation apply? or has there been any change in the base year for circle rates?

Ans: Hi,
The base Year has been changed to 2001 and the CII for the base year starts at 100 and keeps increasing every year. The new LTCG taxation says properties bought before 2001 are eleigible for indexation benefit with old taxation while post 2001, the LTCG applicable is 12.5% without indexation

Best Regards,
Anil Rego,
Founder & CEO,
Right Horizons

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Question by Sunil - Dec 15, 2021Hindi

I intend to sell a freehold residential property at New Delhi. This property was bought by my grandfather in 1971, then inherited by my father and subsequently transferred to me by a gift deed. For calculation of tax purposes, the circle rate at the time of acquisition is required. However, circle rates in Delhi were introduced only in 2007. How can I calculate the tax liability on sale of the property?

Ans: This is an inheritance property.

In this case, the cost of acquisition should be the cost paid by the original purchaser of the property, other than inheritance or gift.

This property has been purchased in 1971 and hence you can use the base year of 2001 for purchases before this date.

You would need to use the fair market value of April 1, 2001 as the purchase price.

You can use indexation based on the CII from this period to the year of sale.

LTCG can be calculated based on this, after adding cost of improvement, if any.

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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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