Sourabh Wadhwa
Introduction: In India buying or selling of properties (Land & Building) at a value lower than the stamp duty value is very much prevalent to save the Stamp Duty on registration, which causes loss of revenue to the Government. Loss is not of just Stamp Duty revenue but also of Income Tax revenue that is to be paid by assessee on Income under head Capital Gain. Therefore in order to plug such loss of Income Tax revenue certain provision were inserted in the Income Tax Act, 1961. In this Article we shall be analysing those provisions.
Page Contents
What is Stamp Duty Value?
Stamp duty value means any value adopted by any authority of the Central government or a state Government for the purpose of payment of stamp duty for the immovable property.
Computation of Capital Gain:
| Sale Consideration | XXX |
| Less: Cost of Acquisition | XXX |
| Less: Cost of Improvement | XXX |
| Income Under the Head Capital Gain | XXX |
Selling of Land & Building below the Stamp Duty Value
Asseessees in order to save Income Tax makes an agreement to sell at price lower than the actual sale consideration and adjust balance amount in cash which adds to his/ her black money. In order to prevent such loss of income tax revenue Section 50C, Sec 43CA and Sec 56(2)(vii)(b) were introduced time to time which plugged this evasion to an extent.
♣ Land & Building being Capital Assets:
According to Sec 50C of Income Tax Act, 1961, if an assessee transfer a capital asset being Land or Building or both at a value less than the value adopted or assessed (in case of registry) or assessable (in case transfer is by power of attorney) by Stamp Valuation Authority for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the Sale Consideration of the Capital Asset. Further Please note that the said section also provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.
Therefore even if you sell below the Stamp Duty Value, Sale Consideration for the purpose of calculating Income u/h Capital Gain will be the Stamp Duty Value assessed or assessable by Stamp Valuation Authority. So it is advisable always to make an Agreement to sale at least at Stamp Duty Value or we can say the prevalent Circle Rates of the area in which Land or Building is situated.
♣ Land & Building being Stock In Trade:
Section 50C deals only with the transfer of Land or Building being Capital Asset and not with transfer of Land or Building being stock in trade. The transfer of land or building being stock in trade is dealt by Section 43CA. In substance Section 43CA lays down the same provisions as Sec 50C does, i.e., if sale consideration is below the stamp duty value then the sale consideration will be deemed to the Stamp Duty Value for the purpose of calculating Income u/h Income from Business and Profession. Further, please note that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and ten per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.
♣ What if it’s a Genuine deal:
In such a case if an assessee claims that the value so assessed or assessable exceed the fair market value of the property and value so assessed or assessable has not been disputed in any appeal or revision before any authority or court the assessing officer may refer the case to valuation officer.
Where the value ascertained by the valuation officer:
- Exceeds the Stamp Duty value: Stamp Duty value shall be taken as sales price
- Lower than the Stamp Duty value: Value so ascertained by the Valuation officer shall be taken as Sales consideration.
♣ What if the date of Agreement to sell and Date of Registration is different:
Where the date of agreement fixing the value of consideration for the transfer of property and the date of registration of such transfer of property are not same, and stamp duty value changes, the stamp duty value in respect of such transfer on the date of agreement shall be taken as sale consideration. This shall apply only in a case where the amount of consideration or part thereof has been received by any mode other than cash on or before the date of agreement for the transfer of property.
It is to be noted that the above provision has been added to section 43CA only, i.e., in case of transfer of land or building being stock in trade and not in case property being capital asset. This seems to be an inadvertent error hoping the insertion of such proviso in Section 50C also.
Buying of Land & Building below the Stamp Duty Value
Not only seller but also the buyer will be at loss if he/she agrees to buy (makes agreement of) at a value below the Stamp Duty Value because of the operation of Section 56(2)(X)(b). According to the said section if the stamp duty value exceeds the purchase consideration by more than Rs.50,000 then, the difference between the Stamp Duty Value and the Purchase Consideration will be treated as Income u/h Other Sources. It also provide that where the assessee receives any immovable property for a consideration and the stamp duty value of such property exceeds ten per cent of the consideration or fifty thousand rupees, whichever is higher, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head “Income from other sources”.
If in this case the date of agreement to sell and date of actual registration is different the stamp duty value in respect of such transfer on the date of agreement shall be taken as sale consideration. This shall apply only in a case where the amount of consideration or part thereof has been paid by any mode other than cash on or before the date of agreement for the transfer of property.
It is to be noted that the above provision are applicable only in case the assessee receives the property as Capital Asset and not as stock in trade. This is because of Explanation (d) to Section 56(2)(X), which states “property means capital asset of the assessee”.
Conclusion with Example
It would be better to conclude with an example to enhance the understanding of the above mentioned provisions:
Mr. Gaurav entered into an agreement to sell a building to Ms. Neha on 1.1.2020 for Rs. 50 Lakh. Ms. Neha made an advance payment of through cheque of Rs. 5 Lakh on 1.1.2020. The stamp duty value on the date of agreement was Rs. 58 Lakh. Mr. Gaurav purchased this property on 1.1.2018 for Rs. 10 Lakh.
Ms. Neha makes the balance payment of Rs. 45 Lakh on 30.6.20 and gets the property registered in her name on that date when the stamp duty value increased to 70 Lakh. Possession was also transferred to her on 30.6.20.
Examine the taxability of the transaction in the hands of Mr. Gaurav and Ms. Neha, if:
- Both Mr. Gaurav and Ms. Neha treat it as capital asset.
- Both Mr. Gaurav and Ms. Neha treat it as stock in trade.
iii. Mr. Gaurav treats it as capital asset but Ms. Neha treats it as stock in trade.
- Mr. Gaurav treat it as stock in trade but Ms. Neha treats it as capital Asset.
Answer:
Case -1: Both Mr. Gaurav and Ms. Neha treat it as capital asset
In the hands of Mr. Gaurav A.Y. 2021-22
Income Under the Head Capital Gain
| Sales consideration (as per sec 50C) | Rs. 70 Lakh |
| Less: Cost of Acquisition | Rs. 10 Lakh |
| Short term Capital Gain | Rs. 60 Lakh |
In the hands of Ms. Neha A.Y. 2021-22
Income u/h Other Sources (sec 56(2)(X) -8 Lakh
Cost of Acquisition as per Section 49(4) shall be Rs. 58 Lakh.
Case-2: Both Mr. Gaurav and Ms. Neha treat it as Stock in Trade
In the hands of Mr. Gaurav A.Y. 2021-22
Income Under the Head Profit & Gain From Business & Profession
| Sales consideration (as per sec 43CA) | Rs. 58 Lakh |
| Sales consideration (as per sec 43CA) | Rs. 10 Lakh |
| Profit & Gain From Business & Profession (PGBP) | Rs. 48 Lakh |
In the hands of Ms. Neha A.Y. 2021-22
Income u/h Other Sources shall be nil since she purchased it as stock in trade and not as capital asset.
Cost of Acquisition shall be Rs. 50 Lakh
Case-3: Mr. Gaurav treats it as capital asset but Ms. Neha treats it as stock in trade
In the hands of Mr. Gaurav A.Y. 2021-22
Income u/h Capital Gain
| Sales consideration (as per sec 50C) | Rs. 70 Lakh |
| Less: Cost of Acquisition | Rs. 10 Lakh |
| Short term Capital Gain | Rs. 60 Lakh |
In the hands of Ms. Neha A.Y. 2021-22
Income u/h Other Sources shall be nil since she purchased it as stock in trade and not as capital asset.
Cost of Acquisition shall be Rs. 50 Lakh
Case-4: Mr. Gaurav treat it as stock in trade but Ms. Neha treats it as capital Asset
In the hands of Mr. Gaurav A.Y. 2021-22
Income u/h PGBP
| Sales consideration (as per sec 43CA) | Rs. 58 Lakh |
| Sales consideration (as per sec 43CA) | Rs. 10 Lakh |
| PGBP | Rs. 48 Lakh |
In the hands of Ms. Neha A.Y. 2021-22
Income u/h Other Sources (sec 56(2)(X) – Rs. 8 Lakh
Cost of Acquisition as per Section 49(4) shall be Rs. 58 Lakh.
All About TDS On Immovable Property Purchase (194IA)
(Republished with Amendments by Team Taxguru)
Sir
Pl. clarify if a property is purchased at 90 Lakh against the circle rate of 120 Lakh, income tax liability will be Rs 30 Lakh but what will be the book value of the property. 90 Lakh or 120 Lakh. Since if 90 Lakh then when resold Capital gains will be more.
I purchased an immovable property which is having a stamp duty value of Rs 50,10,000 but my sale deed is having agreed at 30,00,000. How would I escape from income tax for the difference in value?
I have purchase land in 2019 for 4925000 , constructed uncompleted shed in 2022 for 3850000 but due to short in finanace half constructed shed sold for 8500000/- , stamp duty value shows property of 1,85,00,000/-. how to file return .sold property in loss and further shows 11,00,000 as tax .
Sir, In case purchase of property is Agriculture Land , then section 56(2)(vii)(b) is applicable in the hands of purchaser for the differential value.
Great to learn the procedure of taxation while buying or selling the property. Thank you for sharing the knowledge.
There is views that the the stamp duty valuation procedure for capital gin computation is not followed by IT Authorities as on date in view of some reported appeal in the court of law.
Is this the fact that this stamp duty valuation rule is temporarily kept in abeyance ?
What if the Stamp duty value is exceptionally higher than the fair market value, is stamp duty still calculated on SDV? Isn’t there any provision like capital gains in this case?
Any one who can guide proparly to resolve disparity.
Dear Sir,
Iam a salaried person, I had purchased a flat in the year 2014 and the sale agreement value was Rs.17.60 lakhs and the stamp duty was paid accordingly, now Iam selling the same property at a loss Rs.14.50 lakhs, thus wanted to know whether the sale agreement value should be higher than the price I had bought the property i.e Rs.17.60 lakhs or it has to be of the amount of consideration Iam going to receive that is Rs.14.50 lakhs.
I will be obliged to receive your guidance on the above query.
I have purchased a land @Rs 6000+ in 1986 (the value after consideration as per 1-4-2021 stands on Rs 22,00,000 and inflation rate as on today is 317). I have to sale the land @Rs45,00,000 whereas the stamp duty value is nearly 75,00,000. Please advice me how the LTCG Tax will be calculated in my case. regards.
Hi, I need to discuss about Tax, where can I find you
Hi Folks
Not possible for me to track comments from here.
You can always reach out to me at [email protected] for Professional sevices.
Regards
CA Sourabh Wadhwa
I purchased a property at the cost of 79.0lacs,while stamp duty value was 44.0lacs,and i took loan .Can i get deduction for interest paid? I purchased property in year 2019-20 and loan also sanctioned in jan 2020
Hi Guys, you can reach out to me at [email protected]
I had sold a ancestral land and got the sale deed registered. But inspite of my efforts, I could not get the stamp duty value. Now, what is other alternative to compute long term capital gain on the same ?
HOW CAPITAL GAIN WILL BE CALCULATE ON SUCH LAND WHICH IS PURCHASED ON LESSER PRICE THEN ITS CIRCLE RATE,
Hi
I have purchased a resale flat in Navi Mumbai in April 2019 and it has been first registered on 02 April 2019 and Bank loan was sanctioned on 19th April 2019 Sale deed registration was completed on 21 April 2019.
Flat Value : 43.5 Lakhs + Stamp Duty & Registration fees : 2.93 Lakhs .
As per recent budget new inserted Section 80EE which provide additional Rs.1.5 Lacs deduction on interest on Hosuing loan.
In above case shall I get this benefit ?
Please confirm
Regards,
Chandra Mohan
Please guide if the registered value of property is 30 lakh, and then sold at circle rate which is lesser. What are the legal obligations?
will the stamp duty paid by first buyer on purchase of property be deducted from the stamp duty payable by second buyer of that property?
Hi, my name is Rajdeep actually my query is i am buying a property in Pune Maharashtra which has been offered by the seller to me for 70lk but as my advocate took out the value he says that the government value of the same is 1.07 cr for which i need to pay 6 percent stamp duty which i agred to pay but as i contacted my C.A he says i need to show the transaction of 1.07cr to the seller or else i shall get notice by inckme tax department pleasd can u guide me on this ….
Hi Sir,
I need help with my tax.
I have purchased a property whose govt evaluation was RS 53,20,000(53L).
But I got the flat in low rate. I got it for RS 42,00,000.
I have paid stamp duty during registration for RS 53,20,000(50L).
Now do i need to pay any income tax for the difference of RS 11L.
I heard under section 43-3C or 43CA i have to pay tax to government. I dont know much about tax. Please help me
My husband owns a property in Aligarh(Uttar pradesh) commercial property on G T Road near hotel Royal Residency v hv been trying to sell it since ten yrs but can’t cos the circle rate rate is so high n the offered price by the buyers is less than half so in case if v sell it all our money will b gone in paying the capital gain tax as the govt will only consider the market price or circle rate now is there any solution for this cos v hv got to sell it for r personal needs
Sir
Please suggest, i have purchased an immovable property on 18/05/2014 at INR 32,00,000 but stamp value guideline for the same property is 3,600,000, so what is tax implication for us..?
Hello Sourabh,
Writing to you from Canada. Are there any isues if I sell my property in India below market value? Cause it has become hard to wait for people to come to purchase for the market value.
What will the Service Tax /GST component If the purchase value is less then stamp duty value. Will Service Tax /GST be payable on full stamp duty value or only on purchase value.
Please reply.
Sir,
I sold my property in Bangalore Rs.700/- lesser than the Sub register value by paying the stamp duty as per th SR value, as my property was next to a burial ground and no Hindu was interested in buying that property. A Muslim has purchased it . Now IT officer has sent a notice under Sec 50C and has taken the SR value as the sale consideration. The diff is around 21 lakhs. Since mine is a genuine case, pl suggest me the valid points to win the case. regards
This was one hell of an explanation. Absolutely amazing.!!!!!!!!
Sir what happens if the property is bought through an auction through process where closed bids are submitted. The value is less than the guidance value in the area.
My father purchase a rural agriculture land (out side from municipal area) at actual market rate 50 lakhs, but having govt. circle rate 95 lakhs. what will be tax liability occur. My father is a purely agriculturist.
Sir
I am salaried person. Get salary Rs.550000/- P.A.
I have purchased a flat from Mr. Chatterjee below the stamp value. i,e Stamp value is 2300000/- an actual sale consideration 1600000/- if it is treated capital assets tax on balance amount R.s 120000/- + Interest. May I treated as stock in Trade
If you kindly inform me I Shall be highly obliged
Dear Saurabh,
Hope you are doing well.
I have a query kindly help.
My younger sister (before marriage) won a lottery in mhada at 2010 and we paid 3.75 lakhs in Jan 2011 to acquire it. Now sister (after marriage) is doing a gift deed and handing over that property to me and my mom. Once it is transfer on our name we will be selling it for 22.5 lakhs as per ready reknor. My mom is a house wife with no income and my annual salary is 5 lakh. So my question as below.
1. It is good to transfer property to my name and mom name. or I can just do it on my name
2. What will be the stamp duty and registration cost (%). Heard that for blood relation only 500 rs stamp paper is enough
3. How much tax will be their on capital gain for me and mom after selling flat. How can I
4. Should I have to invest the whole amount at a time in gaining other property? I mean if the gain is 18 lakh and I purchase a property worth rs 20 lakhs by paying 5 lakhs as a down payment and taking loan of 15 lakh then I can use the remaining 18-5= 13 lakhs in something else.
Please suggest a solution for transfer property and to reduce tax.
Thanks,
Sushil
Hello,
Will the same apply to flat bought from funds in NRE account buy foreigner of Indian origin?
Flat agreement to sale executed for 45Lakhs on 01.06.2012. Advance payment of 5 lakhs made on 15.05.2012.
Property handed over and registered 07.07.2016. Registered value 60lakhs.
All moneies paid out of NRE account.
Thanks
Dear sir , gud evening , my wife has purchased land with market value 22 Lacs , paid stamp duty on 22 Lacs but paid amount 9.9 Lacs , her income in2016-17 is 3 Lacs( filing return since five years for amount 2.5 to 3 Lacs every year. Pl tell the income tax liability. Thank you…..Dr Kartar Singh Nagpur
Sir I am going to purchase a plot in Noida . Which circle rate is 72000 / meter and deal value is 55000/ meter. I am salaried person my salary is 51 lac. Plz calculate how much tax I have to paid tax according this capital gain . By buyer
Hi. I’m planning to buy a flat. but the problem is that the builder has shown area in registry of 85 mtr whereas the actual builtup area is on 130 mtr. Will there be any problem in future regarding this? like if I sell it afterwards or any authority problem on constructed area.
Hi,
I want to avail a housing loan for land purchase and construction. My problem is that the bank is only allowing me to sanction loan on the land’s registration value but not on actual purchase value. The actual value is far higher than the registration value. But now i need loan for the actual purchasing value. Please suggest what are the ways that i can get the loan for actual value of land (Other than purchasing land and registering value should be same :))
Thanks
Sony C
I have a query regarding the TDS payment while buying a flat from a builder. I know that if the sale consideration of the property is more then 50 L buyer has to pay 1% TDS. Now my query is how that 50L can be calculated ? What are the component contribute to that 50 L. For example, my builder has charges me on Clubhouse construction + Electricity & Water connection + Clubhouse membership fee + infrastructure development cost. So shall i add those component as well to reach 50L or its should not be added. Only total sqfeet * rate/sqfeet. Please clarify this to me.
Regards,
Anand.
WHETHER THE AGRICULTURAL LAND SITUATED OUTSIDE THE PRESCRIBED LIMITS PURCHASE BELOW THE CIRCLE RATE TAXABLE UNDER SEC 56(2)(VII) IN THE HANDS OF PURCHASER FOR A.Y.2016-17
Flat has been decided to sell at a total consideration of 60 lakhs. The buyer due to various reasons, decides to register at 30 lakhs which is higher than the prevailing Circle Rate of 22 lakhs. The payments will be done through cheque/DD/NEFT. At what price should the property be registered? Can it be registered for 30 lakhs? Also the seller can claim LTCG on 60 lakhs or 30 lakhs? Can the seller declare the entire 60 lakhs as LTCG even though the property is registered for 30 lakhs?
I have purchased a flat in pune for Rs 1.05 cr & the stamp duty value for the same is 1.31 cr so what will be the effect in my income tax books?
sir i booked a flat in jan 2014 by paying more than 50% of the amount to get a discount in the rate.
i did the registration in dec 2015. now the govt value is more than the current market value. on top of that the value at which booked is discount as i paid more then 50% upfront. i paid stamp duty on govt value. but will i be attracted by sec 56. i have the receipts date jan 2014.
I have got into similar condition. I got into agreement as 3500/- per sq.ft for which guidance value was 3300/- per sq.ft. Later came to know about 10% increased guidance value since it has roads on two sides of the plot. This resulted in 3630/- as guidance value. I am ready to pay this extra stamp duty charges. But, if I mention 3500/- as sale consideration value, will this difference will be considered as capital gain[(3630-3500)*size of plot]?
Note that, this difference is more than 50000/-.
Agreement copy is submitted to bank & bank is not ready to accept change in total consideration value of property.
Thank you,
Pradeep
We agreed to purchase Land and Building for Land value ie Rs.12440750/-
While Registration Sub Registrar registered for market value of Land Rs.12440750/- + Ac sheet Shed(old) Rs.6918620/- to this amount
Purchase date 30-01-2015 in joint names of me and my son.
u/h Income from Other Sources u/s 56(2)(vii) will apply to our case.
Present construction cost of the Ac Sheet shed will not be more than Rs.30,00,000/-
we request you to guide us at an early.
Thanking you
Surendra Reddy
Dear sandep
Didn’t get your querry please clarrify.
Feel free to write me at [email protected]
Dear sandep
Didn’t get your querry, please clarrify.
Please feel free to write me at [email protected]
Dear sir
. point In the hands of Ms. Neha A.Y. 2015-16 Income u/h Other Sources (sec 56(2)(vii) -8 Lakh Cost of Acquisition as per Section 49(4) shall be Rs. 58 Lakh please clear to me
Dear Shailendra Agarwal
First of all sorry for late reply and secondly thank you for drawing my attention to a point which hadn’t been addressed in this article.
Regarding your query “What if buyer is an AOP?”
Section 56(2)(vii) applies only on Individual and HUF Assesses that means Assesses other than these are not liable to pay tax u/h Income from Other Sources u/s 56(2)(vii) ,i.e., AOP will not be liable to pay tax even if they purchases at price below the Stamp Duty value.
Please feel free to write me for any Query
You can search me on Facebook “Sourabh Wadhwa”
or can mail me “[email protected]”
What if Buyer is Association of Person
Dear Priya
In that case assessee can request Assessing officer to refer the case to valuation officer provided he has not made any appeal or revision petition for the same.
Dear Sourabh,
For example if property genuinely could not fetch the sale consideration of amount of stamp duty valuation, then will this still get triggered by Section 50C?
Informative and useful.
Circle rate published by the Government most of the times are irrational and has no suitable basis. In a catchment / area having large parcel of land, the valuation of land near access road is same as that of land which is in the middle of the field without any access. In reality, price of land in the middle of the field may be just 1/10th of the land located near the road. Land valuation is very complex subject and price of two adjacent plots, buildings or flats may vary widely; but as per circle rate all are same.