Effective from 1st October, 2023 the Guidance Value of properties in Karnataka is increased by 10% to 30%.  

But what is Guidance Value (GV) and how does it affect property transactions? It is the minimum price at which a property is to be registered at the sub-registrar’s office in Karnataka. In other states like Haryana or Uttar Pradesh, it is referred to as the District Collector rate, while in Maharashtra it is called as the Circle rate or Index value. It goes by the name Stamp Duty Value (SDV), Ready reckoner rate, among other terms.

It may sound like a joke (or ridiculous or meaningless!) to hear that GV plays a crucial role in real estate transactions and can have significant tax implications for buyers and sellers. However, it is how the rule is structured. Let me illustrate the impact of GV / SDV in your future real estate transactions.

Mr. Anand, residing in London owns a flat in Prestige Project in Bangalore. He has identified a potential buyer, Mr. Rajesh, for a sale price of Rs.1.25 Crore. The revised Guidance Value of this project stands at Rs.1.50 Crore. The implications of increased GV are -

1: Higher Stamp Duty Buyers must pay Stamp Duty based on the guidance value, even if the actual sale price is lower, leading to increased cash outflow. In the above case, even though the actual sale price is Rs.1.25 Crore, the buyer of this flat has to pay Stamp Duty at 6.65% on Rs.1.50 Crore. Rajesh will incur an additional cash outflow of Rs.1,66,250.

2: TDS Calculation - For Resident Indians (Not applicable for NRI/OCI as they are covered u/s 195), TDS is calculated on the guidance value u/s 194IA of the Income Tax Act, if the actual sale price is lower than the GV. In this case, if Mr. Anand is a Resident Indian, then TDS has to be done on Rs.1.50 Crore u/s 194IA of the Income Tax Act and not on the actual sale price.  

3: Capital Gain Calculation for the Seller: If the guidance value is more than 110% of the actual sale price (Note: In the above illustration, the difference is more than 110%) then the seller has to pay capital gain taxes on notional income u/s 50C. In other words, guidance value shall be considered as the Sale Price. In the above case, Rs.1,50,00,000 will be considered as the sale price.

4: Notional Income from Other Sources for the Buyer:  It is­­­ not just the seller who has to pay on notional income, even the buyer has to offer the difference amount, in this case, Rs.25,00,000 as income u/s 56(2)(x). The difference amount is taxed in the hands of both the seller and the buyer. It is a double-edged sword.   

So, what needs to be done?

Action # 1 – In case you own a flat or a plot or any property in Bangalore, Karnataka, please check the Guidance Value (2023) from https://erajyapatra.karnataka.gov.in/(S(5qqhhcaky03pon5t0ccukvpo))/default.aspx?AcceptsCookies=yes or https://kaverionline.karnataka.gov.in/KnowYourValuation/KnowYourValuation

Action # 2 – In case you decide to sell the property (or buy), you can keep the guidance value as the reference price. In order to avoid any complications from tax authorities or under the Stamp Act, make sure that the property is sold (or purchased) for a price either equal to or more than the Guidance Value.

What if the market value of the property is lesser than the Guidance Value, say, in the above example, the actual sale price is Rs.1.20 Crore, but the G. Value is Rs.1.50 Crore? In case of such genuine cases, there is a different process to be followed to mitigate the risk. (Those who are in such a situation, can write to me – This email address is being protected from spambots. You need JavaScript enabled to view it. for further guidance)

Understanding the implications of guidance value is essential for anyone involved in real estate transactions in Karnataka. After reading this, you may come across many queries. If so, please write to me or text me at 9845721255.

 

 

 

 

"Attention -----------, the Income Tax Department has received information about certain transactions reported by you in Form 60/61 for FY 2021-22. If you do not have a PAN Number, please apply for Form 49A immediately. Otherwise, submit your PAN Number to the Reporting Entity within 15 days from the campaign execution date. - Income Tax Department"

Several individuals who received this message have reached out to us with questions, and my responses are outlined below:

What does this message mean?

This message is in accordance with the Income Tax Act, which mandates the use of a Permanent Account Number (PAN) for specific transactions. Examples of such transactions include purchasing a vehicle, opening a bank or DEMAT account, or investing in Mutual Funds etc.

In a scenario where an individual, like Mr. Arvind, does not possess a PAN number but wishes to buy a vehicle valued at Rs.8,00,000, he can still complete the purchase by providing a declaration using Form 60.

If Mr. Arvind were to provide such a declaration to a car dealer like XYZ in Bangalore, the dealer would then fill out the details of this declaration in Form 61 and submit it online to the tax department.

The recent message from the tax department signifies that they have received information via Form 61 from dealers indicating the use of Form 60 instead of PAN numbers in these specified transactions. As these transactions necessitate a PAN number, it is imperative to obtain one promptly and submit it to the relevant reporting authority, such as the dealer, within 15 days of receiving this message.

I have not engaged in any such transaction and do not recall submitting any form. I already possess a PAN number. How can I determine where I submitted Form 60?

If you already possess a PAN number but have not shared it with the dealer or sub-registrar's office during particular transactions, it is possible that Form 60 was inadvertently submitted. We recently identified a similar case for one of our clients. During FY 2021-22, our client sold an agricultural property near Karkala village. It is likely that, during this transaction, the real estate agent managing the process might have had Form 60 signed alongside other registration documents and submitted to the Registrar.

I have a PAN number, but I received this message. What should I do in this situation?

Your question is valid. If you already possess a PAN number and cannot recollect engaging in a specific transaction, no immediate action is necessary. You can await any follow-up messages from the department, if applicable. Alternatively, it may be possible that you would have received the message due to software glitches or incorrect filings by the dealer or reporting authority.

In case you require any further discussion on this, please write to This email address is being protected from spambots. You need JavaScript enabled to view it. 

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