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Tax on buying/selling of immovable property below stamp duty value

If any immovable property is sold below the stamp duty value (or circle rate) then such case will fall under Section 50C, Section 43CA, Section 56(2)(vii) and double taxation shall apply on the difference in the stamp duty value and transfer price.

Taxability in hand of seller

Section 50C – If a property is sold below the stamp duty value, the stamp duty value shall be the deemed value of consideration for the purpose of calculating capital gain. The original consideration shall not be consider for the purpose of capital gain in the hands of seller.

Section 43CA – A new section has been inserted from 01st April 2014 to cover the transfer of the immovable property if it is sold below the stamp duty value and such immovable property is treated as a stock in trade by assessee. As per this new section, stamp duty value shall be deemed value of the consideration and used for the purpose of computing profit and gains from transfer of such assets.

For example:- Mr. A purchase a property from Mr. B amounting to Rs 35,00,000. The stamp duty valuation of such property is Rs 45,00,000.

In the above example, Rs 45,00,000 shall be deemded consideration for calculating the capital gain in the hands of Mr. B (seller).

Taxability in hand of buyer

Section 56(2)(vii) – This section is applicable from 1st April 2014. If a property is purchased by any individual or HUF below the stamp duty value and if the difference between the stamp duty value and actual purchase price is more than Rs 50,000 then such difference is treated as a income in the hand of buyer and chargeable under head Income from Other Source.

Cost of acquisition on subsequent sale – The cost of acquisition in the hands of buyer in such cases would be stamp duty value (for future calculation) if such asset is treated as a capital asset. However, if assessee treat such immovable property as stock in trade then the original transfer price (not stampy duty value) shall be used for the purpose of calculating profit and gains from business on future sale.

Notes:

  1. This section apply to individual and HUF not to all assessee.
  2. Where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement.

For example:- Mr. A purchase a property from Mr. B amounting to Rs 35,00,000. The stamp duty valuation of such property is Rs 45,00,000.

In the above example, Rs 10,00,000 (45 Lakh – 35 Lakh) is taxable in the hands of Mr. A (buyer) as Income from Other Sources.

Reference to the valuation officer

Where assessee claims before any Assessing Officer that the stamp duty value exceeds the fair market value of the property as on the date of transfer and such stamp duty value has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer.

a) If the value assessed by Valuation officer is lower than the stamp duty value, the assessed value shall be consider as deemed sale price.

b) If the value assessed by Valuation officer is higher than the stamp duty value, the stamp duty value remain deemed sale price.

So, if the reference is made to the Valuation officer then it may be possible that the stamp duty value may decrease but it cannot be increased on the basis of the valuation officer.

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