Tax On Buying/Selling Of An Immovable Property Below Stamp Duty Value: In India, selling or buying properties (Building and Land) at a valuation lower than the stamp duty amount is widespread to avoid the Stamp Duty on registration, which generates a loss of revenue to the Government. Such losses are not only just on Stamp Duty revenue but also of Income Tax revenue that is to be repaid by an assessee on Income under Capital Gain head.
Under Section 43CA, Section 50C, Section 56(2)(x) states any immovable property is sold below the stamp duty value (or circle rate), then double taxation shall apply on such cases on the difference in the transfer price and stamp duty value.
- What is Stamp Duty Value?
- A Consequent Sale Of Such Property
- Taxability Of A Buyer
- Taxability Of A Seller
What is Stamp Duty Value?
Stamp duty value proposes any value approved by any authority of the State Government or the Central government to pay stamp tax for the immovable property.
A Consequent Sale Of Such Property
If the property is considered as Capital Asset:
According to Section 49(4), the cost of acquisition for the objective of calculating capital gains on succeeding sale in the hands of the buyer (i.e. seller in the subsequent sales) where the capital assets shall be the stamp duty value.
If the property is considered as Stock (Other Than Capital Asset)
Under section 56(2)(x), there is no particular section that allows the assessee to take advantage of the enhanced cost on which tax has been settled at the time of purchasing of property. If such immovable property is being treated as stock in trade by the assessee, then for the purpose of calculating profit and gains from a business on the subsequent sale, the original transfer price (not stamp duty value) shall be used.
Taxability Of A Buyer
Finance Act 2017 (which was applicable from 01st April 2017)
Any person earns an immovable property for a consideration which is less than the value of stamp duty of the property by an amount exceeding fifty thousand rupees, then as per Section 56(2)(x), stamp duty value of such property passes such consideration shall be chargeable and taxable as income or earning in the hands of the buyer under the head Income from Other Sources.
Finance Act 2018 (which was applicable from 01st April 2019)
According to Section 56(2)(x), any individuals gains an immovable property for a consideration that is less than the value of stamp duty of the property and such excess is more than:-
- the sum equal to five percent of the consideration, and
- the sum of fifty thousand rupees
then as per Section 56(2)(x), the stamp duty value of such property passes such consideration shall be chargeable and taxable as income in the buyer’s hands under the head Income from Other Sources.
Section 56(2)(x) shall not be applicable in cases where any property received: –
- from any relation; or (which means Relative)
- on the moment of the marriage of the person; or
- by way of inheritance or under a will; or
- in consideration of the death of the donor or payer, as the case, maybe; or as defined in the Explanation to Clause (20) of section 10 that states -from any local authority; or
- from any university or other educational institution or from or by any trust or institution registered under section 12AA or section 12A; or foundation or fund or hospital or other medical institution or any trust or institution referred to in clause (23C) of Section 10, or
- by any institution or any university or other educational institution or any hospital or other medical institution or fund or trust referred to in sub-clause (iv) or sub-clause (vi(a)) or sub-clause (v) or sub-clause (vi) of Clause (23C) of section 10; or
- by the method of transaction not considered as transfer under clause (vi(a)) or clause (vi(a)) or clause (vi(b)) or clause (vi(c)) or clause (vi(c-a)) or clause (vi(c-b)) or clause (vi(d)) or clause (vii) clause (i) or clause (iv) or clause (v) or] clause (vi) of section 47; or
- from a person by a trust established or created solely for the benefit of a relative of the individual.
Where the date is not the same for an agreement fixing of the amount of consideration and the date of registration for the transfer of the capital asset, then for the purpose of computing the total value of consideration, the stamp duty value as on may consider the date of the agreement and not as on the date of registration for such transfer. However, this exception shall apply only when a part of the amount of consideration, or the full amount has been received by way of an account payee draft or account payee cheque or by using the system of electronic clearing through a bank account, on or before the date of the transfer agreement of such immovable property:
Note:- Similar choice of referencing to valuation officer (as prepared under Section 50CA) is also open to the assessee.
Taxability Of A Seller
When the immovable property is considered as a capital asset
If a capital asset, being building or land or both, is sold for remuneration below the stamp duty value, then according to Section 50C, such stamp duty value for the purpose of calculating capital gain under Section 48 shall be the deemed value of the consideration. The original payment paid for the alteration shall not be regarded for the purpose of capital gain in the heads of the seller.
However, if the date is different for an agreement fixing of the amount of consideration and the date of registration for the transfer of the capital asset, then for the purpose of computing the total value of consideration, the stamp duty value as on may consider the date of the agreement. Provided that a part of thereof the amount of consideration or the total amount has been received by way of an account payee draft or account payee cheque or by using the system of electronic clearing through a bank account, on or before the date of the transfer agreement.
Finance Act 2018 (relevant with impact from 01st April 2019) has improved the applicability of Section 50C only in those cases where the stamp duty value surpasses one hundred and five percent of the total payment so accrued or received for the transfer of the being land or building or both or capital asset.
When the immovable property is considered an asset other than a capital asset such as stock in trade
When an asset (other than a capital asset), being building or land or both, is sold under the stamp duty value, then as per section 43CA, such stamp duty value shall be used for the purpose of computing profit and gains from transfer of such assets and deemed value of the consideration.
However, if the date is different for an agreement fixing of the amount of consideration and the date of registration for the transfer of the capital asset, then for the purpose of computing the full value of consideration, the stamp duty value as on may consider the date of the agreement.
Provided that a part of thereof the amount of consideration or the total amount has been received by way of an account payee draft or account payee cheque or by using the system of electronic clearing through a bank account, on or before the date of the transfer agreement.
Finance Act 2018 (relevant with impact from 01st April 2019) has improved the applicability of Section 50C only in those cases where the stamp duty value surpasses one hundred and five percent of the total payment so accrued or received for the transfer of the being land or building or both or capital asset. Also, if the date is different for an agreement fixing of the amount of consideration and the date of registration for the transfer of the capital asset, then for the purpose of computing the full value of consideration, the stamp duty value as on may consider the date of the agreement. Granted that a part of thereof the amount of compensation or the full amount has been received by any mode other than cash, on or before the date of the transfer agreement.
A Valuation Officer And the Availability To A Seller
If the stamp duty value exceeds the fair market value of the property as on the date of transfer which is claimed by an assessee claims before any Assessing Officer and then such stamp duty value shall not be disputed in any revision or appeal or no reference will be made before any court or the High Court, or other authority, the Assessing Officer may involve the valuation of the asset to a Valuation Officer.
If the Valuation officer assessed a value that is lower than the stamp duty value, then the assessed value shall be acknowledged as the deemed sale price.
If the Valuation officer assessed a value that is higher than the stamp duty value, then the stamp duty value persists deemed sale price.
So, it may be possible that the stamp duty value may decrease if the recommendation is made to the Valuation Officer. Still, based on the valuation officer, it cannot be increased.