• Paying capital gains on amount mentioned in sale of agreement

I am planning to sell a commercial plot , the buyer wants to make an agreement for sale which will reflect the total cost he is going to give me , the  amount will be given in cheques as per him , i intend to pay my capital gains received on this amount .
I would like to know if the transaction is in order or do i have to submit the copy of the registration , of the plot , as i am not sure when they plan to do that
Asked 1 month ago in Property Law from calicut, Kerala
Religion: Hindu
1)you  may buy and sell a property at any mutually agreed price but the fact is that when you go to register the said property in the office of the sub-registrar, you would find that the official, supposed to register your property deal, would compare the sale consideration as mentioned in the sale deed with the fair market value of the property.  The rate so fixed is known as the “circle rate”. Now if the sale consideration as mentioned in the sale deed is lower than the circle rate, the stamp duty would be calculated as per the value prescribed for circle rate

2) for the purpose of calculation of capital gains circle rate would be taken into consideration and not the price mentioned in sale deed .
Ajay Sethi
Advocate, Mumbai
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section 50C of the Income-tax Act, 1961 clearly mentions that the liability on capital gains would arise on the value of the property as fixed by the state valuation authority .

  Thus, capital gains tax would be calculated on the value of the property as fixed by the Stamp Valuation Authority especially when such value is higher than the declared value of the property as appearing in the sale deed
Ajay Sethi
Advocate, Mumbai
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1212 Consultations
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1. You need to register the property at circle rate and pay stamp duty & registration charged accordingly. The difference amount, if any, will be taxed as income from other sources to the buyer who will have to pay tax on this amount as per his income tax slab.

2. The computation of capital gains would be to take the sale consideration as the amount mentioned in the sale deed or the value as per the circle rate, whichever is higher. 

Ashish Davessar
Advocate, Jaipur
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445 Consultations
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If you have mentioned rate in agreement for sale at Rs 50 lakhs then you must pay stamp duty on amount mentioned in agreement for  sale 
Ajay Sethi
Advocate, Mumbai
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1212 Consultations
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You may wait until the sale deed is registered because sale agreement itself will not be considered as a sale of the proerty hence there is no capital gains yet. 
You may consult our auditor on this. 
T Kalaiselvan
Advocate, Vellore
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127 Consultations
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what is the legal implication for a seller if the buyer registers the property at the circle rate , while the buyer gives the market rate which is higher . All payments done  by cheques, the seller will pay capital gains tax on the amount given by the purchaser .

There is nothing wrong in paying the capital gains tax for the actual consideration amount received which is higher than the circle rate. 
The buyer may have got the property registered at the circle rate, this would not make any impact to the vendor if he pays the capital gains tax for the actual consideration received. 
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
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i will give an example the rate mentioned in the agreement of sale is 50,00000.00  the value of the property as per government is 10 laks. the buyer will pay stamp duty on 10 laks. the seller will pay capital gains on 50 laks as the amount is given in cheques. is this ok  for the seller or are there any further tax implications

Since the actual amount received as sale consideration is higher than the registered value of the property, the vendor can very well pay the capital gains tax at the rate for the actual amount received as sale consideration. He need not be worried about the tax implications because he has adhered to the procedures and law for this purpose. 
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
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