The Guidance Value of properties in Karnataka is going to increase by 10% to 30% as of October 1st, 2023.
However, what is Guidance Value (GV) and how does it relate to real estate sales? It is the lowest amount required for a property to be registered in Karnataka at the sub-registrar’s office. It is known as the Circle rate or Index value in Maharashtra, and as the District Collector rate in other states like Haryana or Uttar Pradesh. Among other names for it are Ready Recount Rate and Stamp Duty Value (SDV).
The importance of GV in real estate transactions and the potential tax ramifications for both buyers and sellers may seem absurd, comical, or pointless. It is, nevertheless, the structure of the regulation. Allow me to demonstrate how GV / SDV will affect your upcoming real estate deals.
Mr. Anand, who lives in London, is the owner of an apartment in Bangalore’s Prestige Project. Mr. Rajesh is a possible bidder he has discovered for a sale price of Rs. 1.25 crore. This project’s updated Guidance Value is Rs. 1.50 crore. The following are the effects of higher GV:
1. An increase in stamp duty Even if the actual sale price is less, buyers must still pay Stamp Duty based on the guiding value, which increases their out-of-pocket expenses. The buyer of the apartment in the aforementioned example must pay stamp duty at a rate of 6.65% on the Rs. 1.50 Crore, even though the actual sale price was Rs. 1.25 Crore. Rajesh will need to spend an extra Rs. 1,66,250 in cash.
2: TDS Calculation – If the actual sale price is less than the GV, TDS is computed using the guiding value under section 194IA of the Income Tax Act for Resident Indians (not applicable for NRIs or OCIs as they are covered under section 195). In this instance, TDS must be paid on Rs. 1.50 Crore under section 194IA of the Income Tax Act rather than the sale price if Mr. Anand is a resident of India.
3:Section 194IA of the Income Tax Act for Resident Indians is used to calculate TDS if the actual sale price is less than the GV. This section does not apply to NRIs or OCIs, which are covered by section 195. If Mr. Anand is an Indian resident in this case, section 194IA of the Income Tax Act requires TDS to be paid on Rs. 1.50 Crore rather than the sale price.
4: The Buyer’s Notional Income from Other Sources: In accordance with Section 56(2)(x), the buyer must also give the difference, or in this example, Rs. 25,00,000, as income in addition to the seller. Both the seller and the buyer are responsible for paying taxes on the difference. It has two sharp edges.
The National Income of the Buyer from Other Sources: In addition to the seller, the buyer is required by Section 56(2)(x) to provide the difference, or in this case, Rs. 25,00,000, as income. Taxes on the difference must be paid by both the buyer and the seller. There are two pointed edges on it.
You can use the guidance value as the purchase price if you choose to sell the property (or acquire one). Make sure the property is sold (or bought) for a price that is equal to or greater than the Guidance Value to prevent any issues with tax authorities or under the Stamp Act.
What happens if a property’s market value is lower than its guidance value? For instance, in the case above, the real sale price is Rs. 1.20 crore, but the guidance value is Rs. 1.50 crore. In the event that such incidents are real, a different procedure needs to be used to reduce the risk.
Anyone interested in Karnataka real estate transactions needs to understand the significance of guidance value. After reading this, you could have a lot of questions. If so, kindly contact me by SMS at 9844000399 or via letter.
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