Circle rate, ready reckoner and stamp duty value: the 10% tolerance and tax on selling below it
How the government's minimum property value affects stamp duty, the seller's capital gains, the buyer's taxable income and TDS, with the 110% safe harbour and how to dispute a valuation.
Every state publishes a minimum value for property. It is called the circle rate in Delhi, the ready reckoner rate in Maharashtra and the guidance value in Karnataka and Tamil Nadu. Stamp duty is charged on the higher of this value and the agreed price. Income tax uses the same figure, the stamp duty value (SDV). If you sell for less than 90.9% of the SDV, so that the SDV is more than 110% of the price, the SDV is treated as the seller's sale value. The buyer may be taxed on the gap as income. Within the 10% tolerance, the actual price is accepted. The buyer's 1% TDS is also calculated on the higher figure.
These rules were in sections 50C, 43CA and 56(2)(x) of the Income-tax Act, 1961. They carried over into the Income-tax Act, 2025 from 1 April 2026 with new section numbers.
Three laws, one number
| Law | Who it affects | What the SDV does |
|---|---|---|
| State stamp act | Buyer | Duty is charged on the higher of price and SDV |
| Capital gains rule (formerly s.50C) | Seller | If SDV > 110% of price, SDV is treated as the sale value |
| Business stock rule (formerly s.43CA) | Builder selling inventory | Same 110% test for builders' business income |
| Income from other sources (formerly s.56(2)(x)) | Buyer | If SDV exceeds price by more than both ₹50,000 and 10% of price, the excess is taxed as the buyer's income |
| Property TDS | Buyer | 1% TDS on the higher of price and SDV once that is ₹50 lakh or more |
Worked example: selling below the circle rate
Illustrative resale flat in Delhi. Agreed price ₹80,00,000. Circle rate value ₹92,00,000.
- 110% test: 110% of ₹80 lakh = ₹88 lakh. The SDV of ₹92 lakh is higher, so the tolerance does not save the deal.
- Stamp duty: charged on ₹92 lakh. At 6%, that is ₹5,52,000 instead of ₹4,80,000.
- Seller's capital gain: computed on ₹92 lakh, not ₹80 lakh. The seller is taxed on ₹12 lakh they never received, which is ₹1,56,000 at 12.5% plus 4% cess.
- Buyer's income: the gap is ₹12 lakh, which is more than ₹50,000 and more than 10% of ₹80 lakh. ₹12 lakh is added to the buyer's income and taxed at the slab rate.
- TDS: 1% of ₹92 lakh = ₹92,000.
Now suppose the price were ₹85,00,000. 110% of ₹85 lakh = ₹93.5 lakh, which is above the SDV of ₹92 lakh. Neither the seller's nor the buyer's income tax rule applies. Stamp duty is still charged on ₹92 lakh, because it is the higher figure.
Why circle rates and market prices diverge
- Old or poorly maintained buildings. The circle rate for a locality may not discount age or condition.
- Flats with defects. Litigation, tenant occupation, a landlocked plot or an unapproved floor all lower the market price but not the circle rate.
- Falling local markets. Circle rates rarely go down quickly.
- Distress sales. Auctions and urgent sales close below the published rate.
In each case the honest price can be well below the SDV, and the tax rules can hit both parties.
How to challenge the stamp duty value
For income tax: if you believe the SDV exceeds the fair market value, you can ask the assessing officer to refer the valuation to a Valuation Officer during assessment. If the Valuation Officer's value is lower than the SDV, that value is used. You must not have disputed the SDV in an appeal or revision under the stamp law. Get a registered valuer's report at the time of sale and keep it.
For stamp duty: state stamp laws let a registering officer refer an undervalued document to the Collector of Stamps, and in many states the buyer can also apply for an adjudication of value. Appeals lie under the state stamp act. Check your state's procedure on its registration portal.
Date of agreement relief: if the agreement for sale was signed earlier, and at least part of the price was paid on or before that date by a method other than cash, the SDV on the date of the agreement may be used instead of the SDV on the date of registration. This helps when circle rates rise between booking and sale deed.
Practical steps before you fix a price
- Look up the SDV for the exact property on your state's portal, using locality, building type, floor, age factor and area. The stamp duty guide lists the portals.
- Compare the SDV with your price. If the price is below 90.9% of the SDV, both sides face tax consequences.
- Document the reasons for a low price: valuer's report, photographs, structural audit, pending litigation papers.
- Never split the price into a "white" and a cash part to match the circle rate. The undervaluation and cash risks guide explains why.
- Use the higher value in the TDS calculation to avoid a short deduction. See the property TDS calculator.
FAQ
Does the 110% rule apply to the buyer too?
Yes, in a slightly different form. The buyer is taxed only if the SDV exceeds the price by more than ₹50,000 and by more than 10% of the price.
Is the circle rate the same for a new and an old building?
Many states apply depreciation or age factors, and some use separate rates for ground-floor, upper-floor, lift and non-lift buildings. Read the instructions with your state's rate table.
Can I pay stamp duty on the agreement value and fight the rest later?
The registering officer will normally insist on duty at the SDV before registering, or will impound the document and refer it. Paying the higher amount under protest and appealing is the usual route.
Does the rule apply to gifts?
Different provisions govern gifts. A gift of property from a relative as defined in the Act is not taxed, but a gift from a non-relative is taxed on its stamp duty value.
Sources
- Income Tax Department — capital gains provisions and valuation references
- Department of Revenue, Delhi — circle rates
- IGR Maharashtra — ready reckoner rates
- Kaveri Online Services, Karnataka — guidance values
- See the overview of buying and selling costs and capital gains tax on a sale
