How To Reach At The Fair Market Value Of A Property, And Its Importance In Income Tax Laws

The idea of fair market value is very significant under the income tax laws. The buyer, as well as the seller of a property, will be squeezed if the sale/purchase deliberation as stated in the agreement is lower than the fair market value of the property. In this setting, we will discuss what fair market value is and how it influences purchasers and sellers.

Any profit on the sale of a property is taxed below the income tax laws. The income is generally arrived at, by subtracting the cost of gaining and the cost of improvement, from the sale consideration. If the property is detained for more than two years, you are permissible to avail of the help of indexation, on the costs. For properties that are developed by you prior to April 1, 2001, you have the choice to take the fair market value of the property as of April 1, 2001, in place of the cost of attainment. So, the idea of fair market worth is important for discovering out the cost of achievement, for capital gains determinations.

Similarly, if the price specified in the agreement is lower than the stamp duty approximation of the property, the stamp duty estimate of the property, which is a substitution for the fair market value, is taken as the sale negotiation, in its place of the value stated in the agreement. So, if the agreement value is lower than the fair market value, both, the purchaser and the seller will be wedged.

The income tax laws do not offer any guidelines on how the fair market value of a property has to be here at. However, there are certain ways through which you can make an approximation of the fair market value of the property which would, usually, be acceptable to the Income-Tax Department.

In order to avoid under-reporting of the consideration in sale agreements (which is done to avoid payment of suitable stamp duty),  states have introduced a system of predefined prices, depending on the area and nature of construction. This is done through stamp duty ready reckoner, the announcement of circle rates, etc., which are usually alerted every year.

The circle rate is the price below which property in a community cannot be bought or sold. Evoke that circle rates vary from locality to locality at this point. The local governments occasionally adjust them to keep the worth near the current market value of the real estate in a firm area. You will be mandatory to pay stamp duty based on the normal circle rate even if the seller intends to trust less than the circle rate per square foot. The stamp duty will be calculated based on the transaction cost in this condition if the property is being sold for more than the circular rate.

If the ready reckoner rate is not obtainable for a specific year, you have another choice. You can get an estimate report, from a valuer who is listed under the wealth tax rules and who is recognised for decisive the fair market value for income tax drives. The registered valuer trails a standard process for the drive of external at the valuation and issues a whole valuation report for the same. The fee that a listed valuer can charge, is already set under the laws.

You can also get the services of a registered valuer if you feel that the evaluation as per the ready reckoner is on the higher side. This may ensue due to the reason that the rates avowed in the stamp duty equipped reckoner are uniform for the same plot of land, without there being any place to the situations of the property and any legal argument around the property at that time. The recorded valuer inspects the property and based on his inspection and other relevant deliberations and conditions, gives the valuation report stating the fair market value of the property, along with the basis for inward at the valuation.

It is crucial to remember that the stamp duty ready reckoner's rates are only suggestions and not requirements. Therefore, you should get a valuation report from a valuer to support your claim at the time of closing the deal rather than waiting for your case to be chosen for close examination if you trust the stamp duty/circle rates are developed by more than 105%. The registered valuer's valuation report is typically accepted by the Income-Tax Department. Out of the two options available to you, getting the valuation report from a registered valuer is advised to strengthen and convince your case.