CA Monika Palwar
Let’s understand the tax treatment in case of sale of Land and Building or both, these following considerations have to be taken for this purpose:-
1. One question that may arise in your mind will be that whether can I sale land or building or both at a lower consideration than the Circle Rate?
Answer: – In this case, provisions of section 50C shall apply, Section 50C says that when an individual sells land or building or both at a consideration lower than the Stamp duty value adopted or assessable by authority, then the Stamp duty value adopted or assessable by authority of property would be deemed to be the sales consideration for computation of Capital Gain under section 48 of Income Tax Act, 1961.
However, Budget 2018 has brought about an amendment in section 50C whereby no adjustments shall be made in a case where the variation between stamp duty value and the sales consideration is not more than 5% of sales consideration.
Further, Finance Act, 2020 has made an amendment in section 50C by raising the limit of 5% to 10%, with effect from the 1st day of April, 2021.
2. If section 50C attracts in the hands of the Seller, What would be the treatment in the hands of buyer?
Answer: – If section 50C attracts in the hands of Seller, Section 56(2)(x) of Income Tax Act, 1961 shall be attracted in the hands of Buyer. Section 56(2)(x) of Income Tax Act, 1961 provides that in case of immovable property received by any person as gift (without consideration) then if stamp duty value of such property exceeds fifty thousand rupees, then in such a case stamp duty value of such property shall be taxable in the hands of receiver.
And if person receives immovable property for a consideration, the stamp duty value of such property exceeds such consideration, differential amount shall be taxable in the hands of receiver.
Section 56(2)(x) applicable only if property is in the nature of Capital Asset of the recipient, if it is stock in trade then section 56(2)(x) not applicable.
3. What if, property is in the nature of Stock in trade in the hands of Seller?
Answer: – If property being land or building or both is Stock in trade in the hands of Seller, then section 50C shall not be applicable and in this case, Section 43CA shall be applicable in the hands of Seller.
4. If property transferred is stock in trade in the hands of seller and capital asset in the hands of buyer, then what would be the treatment?
Answer: – In such a case, section 43CA attracts in the hands of Seller and section 56(2)(x) attracts in the hands of buyer.
5. If property transferred is stock in trade in the nature in both of the parties then what would be the treatment?
Answer: – In such a case, Section 43CA attracts in the hands of Seller and there will be no tax treatment in the hands of buyer.
6. What if section 56(2)(x) attracts in the hands of buyer and buyer is willing to sell such property, then what would the treatment in such a case in the hands of buyer?
Answer: – In this case, Cost of Acquisition of such property shall be computed as per section 49(4) of Income Tax Act, 1961. Section 49(4) provides that if any person receiving any asset as gift or acquires for inadequate consideration & he already assessed u/s 56(2)(x) on Fair Market Value or Stamp duty value then Cost of acquisition of such asset shall be Fair market value/ Stamp duty value, which was considered under Income from other sources u/s 56(2)(x) of Income Tax Act, 1961.
7. Whether period of holding of previous owner shall be considered, when Cost of Acquisition is computed as per section 49(4)?
Answer:- In this case, the period of holding of previous owner shall not be included in the period of holding.
8. What if Sales consideration is received in cash, what will be the effect?
Answer: – It is to be noted that till date there is no restrictions on receiving sales consideration in cash for transfer of immovable property. In order to discourage those transactions in cash, Section 269SS was amended to include those cash transactions.
In such a case, section 269SS of Income Tax Act, 1961 attracted as advance for transfer of immovable property is received by seller in mode otherwise than account payee cheque,bank draft or electronic system of clearing.
The Government had in past years took remarkable steps to discourage the cash economy and promotes the digital economy. However to avoid genuine hardship, limits of variation of stamp duty value and sales consideration is raised by 5% to 10%.
Disclaimer: – This article is for the purpose of information and shall not be treated as solicitation in any manner or for any purposes whatsoever. For the benefits of reader a short glimpse of provisions is presented in own language as per my capabilities. It shall not be used for any legal advice or opinion. Readers are advised to kindly go through to the original government publications and published laws and judicial pronouncements. It will be highly appreciable to highlight errors or providing suggestions for effective improvements.