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capital gain

07 November 2009

hii....does anyone know the latest notification regarding how the difference in circle rate of the property and the actual rate of the property is to be taxed.

Will the differnce be considered as deemed gift and on what pesons (HUF,Company,Individual) Is this rule applicable???

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2 Replies

Sunil (Trader) (2611 Points)
Replied 07 November 2009

The new rule for purchase of properties effective 1/10/2009 is applicable only to individual or HUF. If the difference in valuation by the stamp duty officer (registrar / sub registrar of assurances) and the purchase price of property is more than Rs.50,000, the entire difference will be taxed as IFOS in the hands of buyer. This will effectively increase his purchase cost by the amount of tax he suffers on account of this difference but for purpose of calculating capital gains when he sells the property, he can only account his actual purchase price.

In case he purchases it from a relative, then he will not have to pay this tax. But the problem persists for the seller in both the above cases. He has to value his sale at valuation of stamp duty officer if the consideration received is lower than this value.

Therefore if the transfer is between relatives as defined in this section, it is better to make a gift deed rather an agreement to sell. In states like Maharashtra, conveyance may be as high as 5% on agreement to sell but if gift deed is between immediate relatives (wife, sibling, parent, grand parent) then conveyance is 2%. The person gifting (transferor) will have to in addition to this gift deed make an affidavit (declaration under solemn affirmation) on Rs.100 stamp paper confirming his relationship with the transferee and that he has made a gift of property through the gift deed dated whatever.

FYI: HUF is not a relative of the individual or co parcener and vice versa. The gift has to come from relatives specified in section 56.

CA Nikita Agarwal (student) (34 Points)
Replied 08 November 2009

Originally posted by :Sunil
"	The new rule for purchase of properties effective 1/10/2009 is applicable only to individual or HUF. If the difference in valuation by the stamp duty officer (registrar / sub registrar of assurances) and the purchase price of property is more than Rs.50,000, the entire difference will be taxed as IFOS in the hands of buyer. This will effectively increase his purchase cost by the amount of tax he suffers on account of this difference but for purpose of calculating capital gains when he sells the property, he can only account his actual purchase price. In case he purchases it from a relative, then he will not have to pay this tax. But the problem persists for the seller in both the above cases. He has to value his sale at valuation of stamp duty officer if the consideration received is lower than this value. Therefore if the transfer is between relatives as defined in this section, it is better to make a gift deed rather an agreement to sell. In states like Maharashtra, conveyance may be as high as 5% on agreement to sell but if gift deed is between immediate relatives (wife, sibling, parent, grand parent) then conveyance is 2%. The person gifting (transferor) will have to in addition to this gift deed make an affidavit (declaration under solemn affirmation) on Rs.100 stamp paper confirming his relationship with the transferee and that he has made a gift of property through the gift deed dated whatever. FYI: HUF is not a relative of the individual or co parcener and vice versa. The gift has to come from relatives specified in section 56.	"