CS Deepak Pratap Singh

As a general public we have tendency to save taxes by adopting various tricks and transactions. A lot of black money is generated through transfer of various types of immovable properties. The seller and the purchaser generally mutually agree on a transaction to enter into agreement at a price lower than the Fair Market Value of property to save stamp duty etc. These types of transaction have been generated huge black or accounted money in the market.

The Central Government has introduced, Section 50C of the Income Tax Act, 1961 to curb such practices. The provisions of Section 50C have been applied if the following conditions are satisfied;

  1. There must be transfer of land or building or both. The asset may be Long Term Capital Asset or Short term. It may be depreciable asset or non-depreciable asset.
  1. The sale consideration on which that asset has been transferred is less than the value assessed or assessable by any State Government or Central Government authorities or Stamp Duty Value, as assessed by Stamp Duty Authorities in the state.

Note: if above both conditions are satisfied then the value adopted by Stamp Duty Authorities shall be taken as Sale Consideration for transfer of the asset as Full Value of Consideration.

Note: in this case the assessed has power to dispute the Stamp Duty Valuation, and then the stamp duty finally assessed will be taken as Full Value of Consideration.

Section 50C is applicable in only in case of Capital Assets, whether it is land or building or both.

It is also applicable in case when right to develop a property is transferred.

No Notice is required to invoke provisions of Section 50C by AO to assessed.

When Shares in a building, which owns a building is transferred the provisions of Section 50 C are not applicable.

It is applicable to transferor of the Capital Assets not the Transferee.

Note: Suppose Mr. A (Cost of acquisition Rs. 15 Lacs), has sold his flat to Mr. B for Rs. 50 Lacs, Stamp Duty value is Rs. 70 Lacs and further Mr. B;

Mr. A: Income under Capital gain will be charged on =Rs. 70-Rs. 15 Lacs=Rs. 55 Lacs (Sec 50C)

Mr. B: Income under Income from other sources = Rs 20 Lacs

PROVISIONS OF SECTION 43CA;

Now we have understood that the provisions of Section 50C are applicable only on transfer of Capital Assets not assets kept as Stock in trade in case of builders and developers are real state entities.

The developers during the construction of their buildings transfer flats, shops or other properties below the Market Value or Stamp Duty Value to the perspective buyers. The difference between the sale consideration and the Stamp Duty value or market value will be taken in form of cash. This will again generate black money and less tax will be paid to the government on this type of transactions.

The Central Government, through Finance Act, 2013, applicable from 01.04.2014, introduced new provisions of Section 43CA with effect from the assessment year 2014-15.

Since provisions of Section 50C are not applicable for calculating income under Section 28 of the Income Tax Act, 1961.

Section 43CA provides that where the consideration for transfer of asset ( other than capital asset) , being land or building or both, is less than the stamp duty value , the value so adopted ( or assessed or assessable) shall be deemed to be full value of the consideration for the purpose of computing income under “ Profits and gains of business or profession.”

This way transfer of Stock in trade has been also covered and any transfer of the same on a consideration below the stamp duty valuation will be covered under this provision.

When date of agreement and date of registration is not the same;-

When date of Agreement and the date of registration is not the same, then the Stamp Duty on the date of Agreement will be considered. This case will be applicable only when some consideration has been received on or before the date of agreement.

Dispute by Assessee; – if assessee has disputed the valuation made by Stamp Duty Authorities and claim that the Market value of the property is less than the Stamp Duty Assessed. In this case the Assessee Officer may refer the case to Valuation Officer according to provisions of Section 55A of the Income Tax Act, 1961.

Example: lets us consider M/s. XYZ Private Limited has transferred a Shop to one of its Director at Rs. 4.00 Cr., but Stamp Duty Valuation of the shop is Rs. 7.00 Cr., now in this case the difference between Stamp Duty Value and Sale Consideration is Rs. 3.00 Cr., and same will be chargeable in the hand of M/s. XYZ Private Limited as “Income from Business or Profession” during the year in which it is transferred.

Income in hand of Director is NIL, since it is stock in trade.

Note: Provisions of Section 43CA are not applicable on depreciable assets. It is applicable to both transferor and the transferee.

(Author can be reached at cs.deepakpsingh@gmail.com)

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0 responses to “Transfer of Immovable Properties on Sale Consideration Less Than Stamp Duty Valuation”

  1. Jignesh Vyas says:

    -What is about penalty usc.271 where sale price is lower than stamp duty valuation?

  2. P.K.KUndu, Advocate says:

    Correct observations as regards Sec.
    50C and 43CA

  3. B.Chakrapani Warrier says:

    Read. The observation of Satish Ji seems correct.

  4. CA. Satish Nemani says:

    (1) Section 43CA is applicable only to the seller of an asset being land or building or both including agricultural land as section 43CA excludes capital asset as defined in section 2(14) of the I.T. Act, 1961

    (2) Section 56(2)(vii) is applicable to purchaser of immovable property including agricultural land.

    (3) Section 50C is applicable to capital asset being land or building or both excluding agricultural land.

    (4)In view above, Income in the hands of director in the above referred article shall be Rs 3.00 crore under section 56(2)(vii)(b)(ii)in case of sale of property sold by XYZ Private Limited to one of its director.

  5. Radheyshyam Falod says:

    Last para of the topic i.r. sale of Property by Pvt. ltd. to Director, requires elaborate explainantion to understand the implication of Section 43CA

  6. S THIAGARAJAN says:

    Last two lines in this article is confusing, kindly clarify:

    1. Income in hand of Director is NIL, since it is stock in trade.

    2. Note: Provisions of Section 43CA are not applicable on depreciable assets. It is applicable to both transferor and the transferee.

  7. Soumen J says:

    Dear Deepak,

    In a very depressed market, one can get a good deal with real estate transaction. The seller, in the need of liquidity may also dispose off the property at a much lower property. In such case, when the transactions are genuine, what are the options available to both the buyer and seller to avoid the Income or consequential Tax as per provisions u/s 50C ?

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