Sourabh Wadhwa

Sourabh WadhwaIntroduction: 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.

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.

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 Capital Gain.

♣ 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)(vii)(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.

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)(vii), which states “property means capital asset of the assessee”.

Conclusion

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 1.1.2014 for Rs. 50 Lakh. Ms. Neha made an advance payment of through cheque of Rs. 5 Lakh on 1.1.2014. The stamp duty value on the date of agreement was Rs. 58 Lakh. Mr. Gaurav purchased this property on 1.1.2012 for Rs. 10 Lakh.

Ms. Neha makes the balance payment of Rs. 45 Lakh on 30.6.14 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 30.6.14.

Examine the taxability of the transaction in the hands of Mr. Gaurav and Ms. Neha, if:

i. Both Mr. Gaurav and Ms. Neha treat it as capital asset.

ii. 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.

iv. 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. 2015-16

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. 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.

Case-2: Both Mr. Gaurav and Ms. Neha treat it as Stock in Trade

In the hands of Mr. Gaurav A.Y. 2015-16 

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. 2015-16

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. 2015-16

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. 2015-16

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. 2015-16

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. 2015-16

Income u/h Other Sources (sec 56(2)(vii) – Rs. 8 Lakh

Cost of Acquisition as per Section 49(4) shall be Rs. 58 Lakh.

All About TDS On Immovable Property Purchase (194IA)

More Under Income Tax

Posted Under

Category : Income Tax (27475)
Type : Articles (16948)
Tags : section 43CA (10) section 50C (112)

38 responses to “Buying or Selling Property below the Stamp Duty Value”

  1. Sudhir luhadiya says:

    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..?

  2. Bala says:

    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.

  3. Pankaj says:

    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.

  4. C. L. Subramanya says:

    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

  5. PIYUSH BANSAL says:

    This was one hell of an explanation. Absolutely amazing.!!!!!!!!

  6. Aman Dutta says:

    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.

  7. Sushil Kumar says:

    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.

  8. Mithun Chakraborty says:

    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

  9. sushil says:

    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

  10. S.Banerjee says:

    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

Leave a Reply

Your email address will not be published. Required fields are marked *