We all know that when a person sells his property then he has to pay the tax on the gain on sale of the property. Such gain shall be treated as capital gain unless he has a business of buying and selling of properties. At that time, the gain shall be taken as Profits from business and gains Income (PGBP). However, the government has the issue of the price at which the seller sold the property because it might be possible that the seller sold the property at high value but shown it at a lower price for tax purposes. In this case, the government has issued a circle rate of almost every society in our country which is nothing but a fair market value of that place. This price can be called a circle rate or fair market value rate or value as ascertained by stamp duty authority. When we are about to register the property then it is necessary that the price on which stamp duty is going to be paid by the buyer, should not be less than such circle rate value.
In this article, we will discuss, what will happen when you sell the property at a price at lower than the price as ascertained by the stamp duty authority and whether there is an option when you can sell the property at lower than such ascertained value.
Through this article, we will understand some sections of income tax i.e. 50C, 56(2)(x), 43CA of the income tax act, 1961.
First, let me clarify that this section is applicable to all assessee whether you are resident or Non-resident, domestic company or foreign company. So, let’s begin.
Section 50C of Income-tax act: As per this section, if on the sale of land or building or both, sale consideration received by the seller is less than value assessed or assessable by the stamp valuation authority for the purpose of stamp duty value (SDV Value), than the value which is ascertained by the stamp valuation authority shall be considered as sale consideration for the payment of capital gain tax. However, in case, value ascertained by the stamp valuation authority is more than 105% of the sale consideration, then such value as ascertained by stamp authority shall be treated as sale consideration.
In simple words:
If SDV<=105% of the sale consideration than the fair value of consideration = Actual sale price
If SDV> 105% of the sale consideration than the fair value of consideration = SDV value
The condition of 105% of sale value is introduced in the finance act, 2018. Let me explain with an example: Mr. Nikhil is selling its property on 100 Lakhs. Now the value assessed or assessable by the stamp valuation authority is
Case 1: 103 Lakhs
Case 2: 105 Lakhs
Case 3: 110 Lakhs
For the purpose of simplification, we are treating it as short term capital asset hence no indexation.
Case 1: 103 Lakhs
The sale price is Rs100 Lakhs and 105% of the sale price is 105 Lakhs. Since the value ascertained by the stamp valuation authority i.e. 103 Lakhs is less than 105% of sale consideration that is 105 Lakhs, hence the sale consideration shall be treated as the fair value of consideration for taxation purpose i.e. 100 Lakhs.
Note: In this case, do not take Rs.103 Lakhs as the sale price for taxation purposes. The 105% of sale consideration was taken only for making the difference with value as per stamp valuation authority.
Case 2: 105 Lakhs
In this case, 105% of sale value is Rs.105 Lakhs and value as per the stamp valuation authority is also Rs.105 Lakhs. The provision said that if the value as per the stamp valuation authority is not more than the 105% of the sale consideration then the fair value of consideration shall be taken as sale consideration. Here, the 105% of sale consideration value is equal to the value as per stamp valuation authority hence in this case, the fair value of consideration shall be taken as the actual sales price and not the value as per stamp valuation authority.
Case 3: 110 Lakhs
This is the most important case. Since, in this case, the value as per the stamp valuation authority i.e. 110 lakhs is more than 105% of sales consideration i.e. Rs.105 Lakhs. Hence, in this case, the fair value of consideration shall be taken as the value as per the stamp valuation authority.
I hope, now you understand the treatment of checking the condition of 105% of sale consideration.
If the assessee being the seller claims before his assessing officer that the actual fair market value of the property is less than the value adopted by the stamp valuation authority then the assessing officer may refer the case to the valuation officer and valuation officer shall again ascertain the value of such property.
Suppose Mr. Nikhil Sells the property 100 Lakhs and the value as per the stamp valuation authority is Rs.150 Lakhs and Mr. Nikhil Claim that the value of stamp valuation authority is not the fair market value then the assessing officer may refer the case to the valuation officer. Now, here we can again see 3 types of cases:
Case 1: Value ascertain by the valuation officer is more than the value as adopted by the stamp valuation authority
Valuation officer ascertains Rs.200 Lakhs as the value of the property, now, in this case, the value adopted by the stamp valuation authority shall be taken as the fair value of the consideration i.e. Rs.150 Lakhs and not Rs.200 Lakhs.
Case 1: Value ascertain by the valuation officer is less than the value as adopted by the stamp valuation authority
Valuation officer ascertains Rs.130 Lakhs as the value of the property, now, in this case, the value adopted by the stamp valuation authority shall not be taken as the fair value of the consideration instead of the value ascertained by the valuation officer shall be taken i.e. Rs.130 Lakhs and not Rs.150 Lakhs.
Case 1: Value ascertain by the valuation officer is even less than the value as shown as sale consideration by the seller of the property
The valuation officer ascertains Rs.90 Lakhs as the value of the property, now, in this case, the value ascertained by the valuation officer shall not be taken instead the value provided by the assessee being seller shall be taken i.e. Rs.100 Lakhs and not Rs.90 Lakhs.
Let me clarify this in tabular form for better understanding:
| S.No. | Value as per Assessee | Value as per the stamp valuation authority | Value as per the valuation officer | The value is taken as the fair value of consideration |
| 1 | 100 Lakhs | 150 Lakhs | 200 Lakhs | 150 Lakhs |
| 2 | 100 Lakhs | 150 Lakhs | 130 Lakhs | 130 Lakhs |
| 3 | 100 Lakhs | 150 Lakhs | 90 Lakhs | 100 Lakhs |
Note: If a person sold his property after 2 years from the date of acquisition then the gain on the sale of property shall be taken as long term capital gain and if he sold within 2 years than it shall be called short term capital gain. The assessee can take the benefit of indexation in case of long term capital gain.
As you see, the value of the stamp valuation authority may be changed from time to time. So, the next question arises is, on which date we have to check such stamp duty valuation rate. It can be the date of the agreement or the date of registration.
Normally, it is seen that the date of registration is being considered as the date of acquisition of property and similarly for the purpose of checking the value of stamp valuation authority as on the date of registration. However, there is one exception to this.
If on or before the date of the agreement, the consideration amount or any part of the consideration has been received to the assessee being a seller of the property, then, in this case, the value of stamp valuation authority shall be taken on the date of the agreement and not on the date of registration. Also, it is necessary that such consideration or part of the consideration should be received through account payee cheque or account payee DD or any other electronic channel that is other than cash mode.
If during any appeal or revision, the value of the property is revised then the assessing officer shall pass the rectification order within 4 years from the end of the financial year in which such order for revising the value, has been passed.
Till now, we have to talk about the value that will be taxed in the hands of the seller. Now, we will see, how that buyer would be liable to pay tax if the property is being sold at less than the fair value.
Section 56(2)(x) is a very wide section that explains other provisions also but I’ll explain the provision which is related to the sale of immovable property.
As per this section, the assessee being the buyer of the property shall be liable to pay tax under the head other sources which shall be the difference between the actual sale price and the value as adopted by the stamp valuation authority. This will happen only when all the following conditions are satisfied:
- A person receives an immovable property from any other person
- The value of the stamp valuation authority is being less than 105% of actual sales consideration.
- The difference between the sales consideration and the value as adopted by the stamp valuation authority is more than Rs.50,000.
After understanding this provision, you will come to know that government intentionally charge double tax on a certain amount on which both seller and buyer are liable to pay tax. Let me explain the above provision with some cases:
Mr. Nikhil acquires an immovable property on 10th August 2019. Cost of acquisition and stamp duty value are as follows –
| Particulars | Case 1 | Case 2 | Case 3 | Case 4 | Case 5 | |
| Consideration | 8,00,000 | 8,00,000 | 8,00,000 | 12,00,000 | 12,00,000 | |
| Stamp duty value | 8,39,000 | 8,46,000 | 8,70,000 | 12,59,000 | 12,80,000 | |
| Case 1 | Case 2 | Case 3 | Case 4 | Case 5 | ||
| Consideration | (a) | 8,00,000 | 8,00,000 | 8,00,000 | 12,00,000 | 12,00,000 |
| 105% of (a) | (b) | 8,40,000 | 8,40,000 | 8,40,000 | 12,60,000 | 12,60,000 |
| Stamp duty value | (c) | 8,39,000 | 8,46,000 | 8,70,000 | 12,59,000 | 12,80,000 |
| Relevant conditions to attract section 56(2)(x) – | ||||||
| Whether (C ) is more than (b) | No | Yes | Yes | No | Yes | |
| Whether the difference between (b) and (C ) is more than Rs.50,000 | No | No | Yes | Yes | Yes | |
| Amount taxable in the hands of Buyer under section 56(2)(x) | 0 | 0 | 70000 | 80000 | ||
| The fair value of consideration taken in the hands of the seller under section 50(C ) | 8,00,000 | 8,46,000 | 8,70,000 | 12,00,000 | 12,80,000 | |
In case, the assessee has sold the land or building or both by treating it as stock in trade, then also, the same provision shall be applicable which is mentioned under section 43CA.
I hope, this article will help you at the time of TDS on the purchase or sale of the property. If you have any doubt or query then you can contact us or WhatsApp us.
Difference of RS. 50000/- in sale price to sdv is shown in the write up. Whereas in the practical example difference of RS. 50000/- in 105% of sale price to sdv is calculated. Please clarify
In the UK Stamp Duty based upon my interpretation is based upon the sale price , not on the assessed value by the Valuator.
Example: seller advertised sale of property for 350,000 .00 – received no offers in 1 year reduced the price to 325,000.00 – received no offers in another 6 months then reduced the price to 300,000 .00 and finally sold it for 275,000.00
The Valuation Officer Authority valued it for 400,000.00 . Hence, in my opinion the Stamp Duty should be based upon the sale price and not on the assessable value of 400,000.00
Effectually, the market value is what the buyer and the seller has agreed to unless there is proof of an underhand deal.