Atmanirbhar Bharat 3.0 comes with a major relief for homeowners – buyers or sellers – in terms of lower stamp duty and capital gains tax. The government has decided to increase the differential between agreement value and circle rate from 10 per cent to 20 per cent (under section 43CA) for the period starting now to June 30, 2021. However, it is only for primary sale of residential units of value up to Rs 2 crore.

“This move will ensure that the first-time homebuyers and fence-sitters also enter the market resulting into good sales over the next few quarters,” says Manju Yagnik, VCP Nahar Group and Senior Vice President, NAREDCO (Maharashtra).

We tell you how it will help buyers in saving stamp duty and sellers in cutting down on significant capital gains taxes:

Various parts of the country witnessed sharp correction in the property prices after the government announced the demonetisation of high-value currency notes. Subsequently, the subdued economic conditions made sure that hardly any significant recovery there was in the prices. On top of it, when the coronavirus hit the country, the prices faced either stagnation or further correction in many parts of the country.

However, the circle rate did not go through any correction during this period. Circle rate is the government-approved minimum rate at which a property should be registered and the buyers need to pay stamp duty on this value. Even if the property value is lower than the circle rate, the buyers are required to pay stamp duty on the circle rate.

For instance, if the buyer and developer have agreed at the property value of Rs 80 lakh, but the circle rate of the property is Rs 1 crore, the buyer will have to pay a stamp duty of Rs 7 lakh (7 per cent of circle rate of Rs 1 crore) and not Rs 5.6 lakh (7 per cent of actual property value of Rs 80 lakh). It means the buyer will have to pay Rs 1.4 lakh extra stamp duty. This discourages the buyers from buying a property due to additional stamp duty cost.

Earlier the government allowed stamp duty to be paid at a concession of 10 per cent below the circle rate. However, this failed to address the concerns of the regions that had witnessed greater reduction in property prices. Now the government has allowed a concession of 20 per cent on the circle rate which appears to cover the majority of property markets in India.

“The increase in circle rate and transaction value threshold from 10 per cent to 20 per cent will remove a transaction hurdle and save tax, thereby increasing the opportunity for unbridled property purchase activity,” says Shishir Baijal, Chairman & Managing Director, Knight Frank India.

Now the buyer in the said example will be able to save Rs 1.4 lakh of stamp duty. The government has also announced that it will amend the relevant Income Tax Act so that the buyers do not have to pay taxes on the difference between the circle rate and actual value of the property. “Consequential relief up to 20 per cent shall also be allowed to buyers of these units under section 56(2)(x) of IT Act for the said period,” said the presentation by the government.

For developers, who were unable to find buyers even at reduced prices due to higher stamp duty, will have greater chances of finding a buyer. As the government has also said that it will amend the I-T Act to allow the sellers to show the lower value up to 20 per cent lesser than the circle rate, the seller will not be required to pay capital gains taxes on circle rates.