CA Srikant Agarwal

Article discusses Income Tax impact of union Budget 2018 on Deemed Income arising on sale/ purchase of immovable property under Section 50C, Section 56 and Section 43CA.

In order to save tax on capital gain / business income arising on sale of immovable property (like land, Building, flat, shop, garage etc) some people (i.e seller) use to take some portion of the total consideration in cash and balance in form of instrument (like cheque, draft etc) .

In such cases the portion of consideration received in cash is generally not considered while computing sale consideration for the purpose of capital gain.

In order to encounter such kind of situation 3 sections has been included in Income Tax Act 1961

1) Sec 50C (Related to Capital Gain)

2) Sec 43CA (Related to Business and Profession)

3) Sec 56 (Related to Income from other sources).

Sec 50C (Related to Capital Gain)

Section 50C provides that if the sale consideration of an immovable property is less than the value adopted by state Govt (stamp valuation authority) then such value adopted by stamp valuation authority will be deemed to be full value of consideration.

For example: Say Mr X sold a flat to Mr Y for a consideration of Rs 40 Lacs. However at the time of registration, value adopted by stamp valuation authority is Rs 41 Lacs. Then in such a case full value of consideration (i.e sale price) will be deemed to be Rs 41 lacs only.

However if the assesse is not satisfied with such valuation, he may refer the same to valuation officer and in such cases decision of valuation officer will be final.

Sec 43CA (Related to Business and Profession)

Since section 50C is related to capital asset, so in order to cover promoters and other dealer (who holds immovable property as stock in trade), section 43CA had been introduced.

Section 43CA provides that where sale value of a land or building or both, is less than stamp duty value, then stamp duty value will be deemed to be full value of consideration.

However the stamp duty value on the date of agreement (instead of date of registration) can be adopted as full value of consideration, if at least some part of the consideration has been received on or before the date of agreement in any mode other than cash.

Above can be illustrated with the help of below example:

Case Date of Transfer Actual consideration Stamp duty value on date of agreement Stamp duty value on date of Registration Full value of consideration
1 01.01.2018 100 Lacs (Rs 10 Lacs received in cheque on 15.05.2017) 125 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 125 Lacs
2 01.01.2018 100 Lacs (Rs 10 Lacs received in Cash on 15.05.2017) 125 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 200 Lacs
3 01.01.2018 100 Lacs (100% is paid on date of registration) 125 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 200 Lacs

However if the assesse is not satisfied with such valuation, he may refer the same to valuation officer and in such cases decision of valuation officer will be final. 

Sec 56 (Related to Income from other sources).

A person may purchase an immovable property either from promoter or trader (for whom income would be business Income) or from previous owner (for whom income will be treated as Capital Gain).

Sec 56 deals with deemed income of the receiver of property and can be illustrated with the help of below table:

S.N Nature of asset Consideration type Taxable Value
1 Money Without Consideration The whole amount if it exceeds Rs 50,000
2 Movable property Without Consideration FMV (Fair market value) of the property if it exceeds Rs 50,000
3 Movable property Inadequate Consideration Difference between FMV and actual consideration if such difference exceeds Rs 50,000
4 Immovable property Without Consideration Stamp value of the property if it exceeds Rs 50,000
5 Immovable property Inadequate Consideration Difference between stamp value and actual consideration if such difference exceeds Rs 50,000

So in case of immovable property if the difference between stamp value and actual consideration is greater than Rs 50,000, then the whole difference between stamp value and actual consideration will be treated as deemed income of the receiver of property.

For example: Say Mr X sold a flat to Mr Y for a consideration of Rs 40 Lacs. However at the time of registration, value adopted by stamp valuation authority is Rs 41 Lacs. Then in such a case

For Mr X:  full value of consideration (i.e sale price) will be deemed to be Rs 41 lacs only.

For Mr Y : Rs 1 lacs (i.e 41 lacs – 40 lacs) will be treated as Income from other sources

However above provision will not apply to receiver, if he is a relative, or received the property under will or inheritance and other defines circumstances.

Amendment in above provisions by proposed Budget 2018

It has been felt that in many cases difference between stamp value and actual consideration are for valid reason which causes genuine hardship to buyer as well as seller.

All the flats or building in the same locality are generally assigned same stamp duty value. However their real market value depends on a number of factors like size (whether triangular or square),  side (whether east facing or west facing), floor (whether top floor or ground floor) etc.

So in order to provide relief the limit of Rs 50,000 has been replaced by 5% of actual consideration or Rs 50,000 whichever is higher and in other cases a difference upto 5% of actual consideration has been allowed.

Following amendment has been inserted in section 50C, 43CA and Section 56.

Sec 50C (Related to Capital Gain)

Section 50C provides that if the sale consideration of an immovable property is less than the value adopted by state Govt (stamp valuation authority) then such value adopted by stamp valuation authority will be deemed to be full value of consideration.

It is proposed to insert a proviso to sub-section (1) so as to provide that where stamp duty value does not exceed 105% of the consideration, the consideration so received shall be deemed to be the full value of the consideration.

For example: Say Mr X sold a flat to Mr Y for a consideration of Rs 40 Lacs. However at the time of registration, value adopted by stamp valuation authority is Rs 41 Lacs. Then in such a case full value of consideration (i.e sale price) will be deemed to be Rs 40 lacs only since stamp duty value does not exceed 105% of consideration (i.e 105% of Rs 40 Lacs = 42 Lacs).

Sec 43CA (Related to Business and Profession)

Section 43CA provides that where sale value of a land or building or both, is less than stamp duty value, then stamp duty value will be deemed to be full value of consideration.

It is proposed to insert a proviso to sub-section (1) so as to provide that where stamp duty value does not exceed 105% of the consideration, the consideration so received shall be deemed to be the full value of the consideration.

Above can be illustrated with the help of below example:

Case Date of Transfer Actual consideration Stamp duty value on date of agreement Stamp duty value on date of Registration Full value of consideration Remark
1 01.01.2018 100 Lacs (Rs 10 Lacs received in cheque on 15.05.2017) 125 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 125 Lacs
01.01.2018 100 Lacs (Rs 10 Lacs received in cheque on 15.05.2017) 103 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 100 Lacs Since on date of agreement stamp duty value <= 105% of actual consideration
2 01.01.2018 100 Lacs (Rs 10 Lacs received in Cash on 15.05.2017) 125 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 200 Lacs
01.01.2018 100 Lacs (Rs 10 Lacs received in Cash on 15.05.2017) 103 Lacs (on 01.06.2017) 104 Lacs (on 01.01.2018) 100 Lacs Since on date of Registration stamp duty value <= 105% of actual consideration
01.01.2018 100 Lacs (Rs 10 Lacs received in Cash on 15.05.2017) 125 Lacs (on 01.06.2017) 104 Lacs (on 01.01.2018) 100 Lacs Since on date of Registration stamp duty value <= 105% of actual consideration
3 01.01.2018 100 Lacs (100% is paid on date of registration) 125 Lacs (on 01.06.2017) 200 Lacs (on 01.01.2018) 200 Lacs
01.01.2018 100 Lacs (100% is paid on date of registration) 103 Lacs (on 01.06.2017) 104 Lacs (on 01.01.2018) 100 Lacs Since on date of Registration stamp duty value <= 105% of actual consideration
01.01.2018 100 Lacs (100% is paid on date of registration) 125 Lacs (on 01.06.2017) 104 Lacs (on 01.01.2018) 100 Lacs Since on date of Registration stamp duty value <= 105% of actual consideration

Sec 56 (Related to Income from other sources).

A person may purchase an immovable property either from promoter or trader (for whom income would be business Income) or from previous owner (for whom income will be treated as Capital Gain).

Existing sec 56 provides that if the fair market value or stamp value of the property exceeds Rs 50,000 then the same will be treated as deemed income of the receiver.

It is proposed to amend the above section so as to provide that where any person receives any immovable property for inadequate consideration, then the difference between stamp value and actual consideration will be treated as income from other sources if such difference is excess of Rs 50,000 or 5% of consideration whichever is higher.

Above can be illustrated with the help of below example:

S.N Nature of asset Consideration type Existing Taxable Value Taxable value for FY 2018-19 (as proposed in Budget 2018)
1 Money Without Consideration The whole amount if it exceeds Rs 50,000 Same
2 Movable property Without Consideration FMV (Fair market value) of the property if it exceeds Rs 50,000 Same
3 Movable property Inadequate Consideration Difference between FMV and actual consideration if such difference exceeds Rs 50,000 Same
4 Immovable property Without Consideration Stamp value of the property if it exceeds Rs 50,000 Same
5 Immovable property Inadequate Consideration Difference between stamp value and actual consideration if such difference exceeds Rs 50,000 Difference between stamp value and actual consideration if such difference exceeds Rs 50,000 or 5% of consideration whichever is higher

For example: Say Mr X sold a flat to Mr Y for a consideration of Rs 40 Lacs. However at the time of registration, value adopted by stamp valuation authority is Rs 41 Lacs. Then in such a case

For Mr X:  full value of consideration (i.e sale price) will be deemed to be Rs 40 lacs only. Since stamp duty value does not exceed 105% of consideration (i.e 105% of Rs 40 Lacs = 42 Lacs).

For Mr Y : Rs 0  (NIL) will be treated as Income from other sources (Since difference of Rs 1 lac is less than Rs 2 lacs (i.e Rs 50,000 or 5% of Rs 40 lacs = 2 lacs, whichever is higher)

For example: Say Mr X sold a flat to Mr Y for a consideration of Rs 40 Lacs. However at the time of registration, value adopted by stamp valuation authority is Rs 45 Lacs. Then in such a case

For Mr X:  full value of consideration (i.e sale price) will be deemed to be Rs 45 lacs only. Since stamp duty value is > 105% of consideration

For Mr Y : Rs 5 lacs will be treated as Income from other sources (Since difference of Rs 5 lac is greater than Rs 2 lacs (i.e Rs 50,000 or 5% of Rs 40 lacs = 2 lacs, whichever is higher)

Conclusion: From analysis of the above provisions, it can be concluded that the proposed amendment is a welcome change and reduces genuine hardship to a large extent.

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Tags : Budget (1957) Budget 2018 (401) CA Srikant Agarwal (30) section 43CA (11) section 50C (119) section 56 (125)

7 responses to “Budget 2018 Impact on Deemed Income arising on sale/ purchase of immovable property”

  1. CA Akash jain says:

    The anaylsis part was very well explained …….connecting everything and linking is not a easy task which u have done lucidly……appreciable

  2. Srikant says:

    For TDS actual transaction value should be considered

  3. sabyasachi dutta says:

    Hi,
    For calculating 1% TDS which one we should consider the stamp value or the actual transaction value ?

    Thanks

  4. V. Nagarajan says:

    May we have your permission to reproduce the article in our publication Chennai Property and A Guide to Chennai Real Estate.

    Due credit will be given to the author and taxguru.in
    Editor, Priya Publications.

  5. Anil Rao says:

    good analysis

  6. Anil Rao says:

    The taking of any sum above Rs. 20,000 in cash violates Section 269SS of the Act

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