Points To Be Kept In Mind At The Time of Selling And Buying Property For The Purpose of Income Tax

If you are going to sell a property then a number of points are to be kept in mind which are explained below :

1. The sales consideration if lower than value adopted or assessed by any authority of State Government then as per Section 50C  such value as assessed or adopted by an authority of State Government shall  deemed to be the full value of sales consideration under section 48 for the purpose of calculating long term or short term capital gain as the case may be.

2. In case the date of agreement and date of registration are different, in such case the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purpose of computing full value of consideration provided the amount of sales consideration or a part thereof is received by an account payee cheque or bank draft or electronic clearing mode.

3. In case the value adopted or assessed by stamp valuation authority of State Government does not exceed 5% (10% w.e.f. 1.4.2020) of actual value then the actual sales consideration shall be deemed to be full value of consideration for the purpose of section 48.

4. The assessee can claim before Assessing Officer that the value assessed or assessable by an authority of state Government is more than fair market value of the said property and such value assessed or assessable by an authority of state government has not been disputed in any court or high court, then the Assessing Officer may refer the case to departmental valuation officer under section 55A.

5. In case the departmental valuation officer gives a report that fair market value is as given by assessee then no action shall be taken. In case the value as given by Departmental valuation officer exceeds or is as per value assessed or assessable by stamp valuation authority of state Government then such value shall be deemed to be full value of consideration as per section 48.

6. Here the assessee can challenge the valuation as calculated by Departmental Valuation Officer before the Assessing Officer and appellate authorities.

7. Apart from above while selling the property no amount exceeding Rs. 20000.00 or more can be taken or accepted otherwise than by an account payee cheque or bank draft or electronic mode as prescribed in Section 269SS otherwise an amount equal to the amount taken or accepted shall be imposed as penalty under section 271D. Section 269SS is applicable even on sale of agricultural land.

If you are going to buy a property then a number of points are to be kept in mind which are explained below :

1. The purchase consideration if lower than value adopted or assessed by any authority of State Government then as per Section 56(2)(x) such value as assessed or adopted by an authority of State Government shall  deemed to be the full value of purchase consideration (Difference of Rs. 50000.00 shall be ignored). However if the property is purchased from a relative then this section is not applicable. The definition of relative is given in Section 56(2)(vi).

2. In case the date of agreement and date of registration are different, in such case the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken as purchase value for the purpose of section 56(2)(x) provided the amount of purchase consideration or a part thereof is paid by an account payee cheque or bank draft or electronic clearing mode.

3. In case the value adopted or assessed by stamp valuation authority of State Government does not exceed 5% (10% w.e.f. 1.4.2020) of actual purchase consideration then the actual purchase consideration shall be deemed to be full value of consideration.

4. The assessee can claim before Assessing Officer that the value assessed or assessable by an authority of state Government is more than fair market value of the said property and such value assessed or assessable by an authority of state government has not been disputed in any court or high court, the  the Assessing Officer may refer the case to departmental valuation officer.

5. In case the departmental valuation officer gives a report that fair market value is as given by assessee then no action shall be taken. In case the value as given by Departmental valuation officer exceeds or is as per value assessed or assessable by stamp valuation authority of state Government then such value shall be deemed to be full purchase value and excess shall be deemed as income from other sources.

6. Here the assessee can challenge the valuation as calculated by Departmental Valuation Officer before the Assessing Officer and appellate authorities.

7. In the purchase value is Rs. 5000000.00 or more than a sum equal to 1% of the purchase consideration is required to be deducted from the amount payable to seller under section 194-IA and the amount so deducted has to be deposited to the credit of central government with 30 days from the end of the month in which tax was deducted and TDS certificates are also required to be downloaded and given to seller. Even when sellers are more than one and individual sales consideration does not exceed Rs. 50.00 Lakhs or more even then tax is required to be deducted. If tax is not deducted then the buyer shall land himself in litigation and losses.

In case the sales consideration or purchased value is actually less than the value as assessed or assessable by stamp valuation authority of state Government then the assessee can go in legal fight with Government in various appellate forms. In this regard it is stated that Section 50C and section 56(2)(x) are deeming sections meaning there by that if we are in position to demonstrate with evidences that the value as per stamp valuation authority is more than fair market value due to various reasons like location of property, approach road, defective title, tenants not vacating the property, price at which property is available in similar location ramshackle condition of property, low ground level  requires filling of soil and a number of factors are also there, in that case the value as given by assessee shall  be considered as actual value and no adverse inference shall be drawn . The position as accepted by honourable Madras courts is explained below :

Jagannathan Sailaja Chitta v. ITO (2019) 417 ITR 61

Allowing the appeal of the assessee the Court held that, provision of section 50C only enables revenue to adopt Guidance Value declared by State for payment of stamp duty as Fair Market Value under section 48, but, that Guidance Value cannot, ipso facto, be taken as valuation for purpose of computing Capital Gains Tax liability in hands of assessee/seller. S. 50C(2)  itself provides for reference to Departmental Valuation Officer (DVO) if assessee objects to invoking of section 50C (1). However an assessee cannot be denied an opportunity to raise his objections even against presumptive Fair Market Value under section 50C (1) or report of DVO under section 50C (2) and Assessing Authority or Appellate Authorities, whose powers are co-extensive with those of Assessing Authority, cannot refuse to meet those objections point by point.  Accordingly the matter was remanded to the Assessing Officer to pass the order after considering the objections of the assessee.  (AY. 2012-13)

I hope the above article will be help to readers.

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Company: Rajeev S Jain & Associates
Location: Faridabad, Haryana, India
Member Since: 31 May 2019 | Total Posts: 20
I am a Chartered Accountant in Practice from last 30 years. Any one who wants to discuss something related to Income Tax can mail me at [email protected] or call on 9810581427. View Full Profile

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3 Comments

    1. Thomas Kurian says:

      if the fair value of a property is Rs 25 Lakhs and it is sold for Rs 50 Lakhs what will be the consequence? All other formalities have been duly complied with, like no cash handling above Rs 2 Lakhs, all money exchanged through Chq or bank transfer etc

  1. vishnu kumar agrawal says:

    my employee has not deposited TDS for fy 2019-2020 till date.what action can be taken against him for this default,pls confirm
    mobile no 8279374130

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