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Know the special provisions for the full value of consideration for the calculation of tax.
Purchasing property is undoubtedly one of the biggest achievements of an individual’s lifetime. But with the purchase and sale of property comes a lot of tax compliances. To make sure your property purchase/sale doesn’t turn into a legally complicated situation with penalties and charges, it is important to understand the provisions of section 50C that help ascertain the correct value of the land or building and accurate calculation of tax.
Section 50C deals with the computation of capital gain on the sale of land or building or both, which is held as capital assets. As per this section, the value of sale consideration should not be less than the stamp duty value as assessed by the Stamp Valuation Authority. However, a marginal relief of 10% variation is allowed by the income tax department; this can be understood in the examples listed in the below questions. Section 50C is not applicable if, land or building, or both are held as stock.
The Stamp Valuation Authority is the organization that determines the stamp duty value on the registration of immovable property. Stamp duty is a tax levied on transactions related to property registration. This valuation is taken into consideration while calculating capital gains. Section 50C of the Income Tax Act uses the stamp duty value adopted by SVA as stamp duty on property registration.
Section 50C is applicable in the conditions given below:
| Particular | Amount |
|---|---|
| The full value of consideration: Sale value or stamp duty value (Higher) | XXX |
| Less:- Expenditure in relation to the transfer | (XXX) |
| Net Consideration | XXX |
| Less: Cost of Acquisition | (XXX) |
| Less: Cost of Improvement | (XXX) |
| Capital Gain/loss | XXX |
However, where the Stamp duty value does not exceed 110% of consideration, then sale consideration is treated as Full Value of Consideration
Example: If sale consideration is Rs. 20,00,000/-. In this case, the stamp duty value assessed by the authority is Rs. 20,50,000/-
| Particulars | Amount |
|---|---|
| Sale value | 20,00,000 |
| Stamp Duty Value | 20,50,000 |
| Percentage of SDV/Sale value Acceptable Value (10% variation is allowed) | 102.5% |
| The full value of consideration will be Sale value [since SDV is not more than 110% of sale value] | 20,00,000 |
NOTE:- If, in case, the sale value would have been 15lac, i.e., variation greater than 10% from the stamp duty value, then the Full value of consideration in such case would have been 2050000 (sdv).
Stamp duty value is to be taken as assessed by the Stamp Valuation Authority. However, it is quite possible that the stamp duty on the date of the agreement is different from the stamp duty value on the date of registration. In such a scenario, there are 2 possible cases:
Case 1: Take stamp duty value on the date of the agreement
Case 2: Take stamp duty value on the date of registration
| Particulars | Situation 1 | Situation 2 | Situation 3 |
|---|---|---|---|
| Stamp duty value on the date of the Agreement | 25,00,000 | 26,00,000 | 22,00,000 |
| Stamp duty value on the date of Registration | 28,50,000 | 30,50,000 | 28,50,000 |
| Payment of consideration | Before the date of the agreement | After the date of the agreement | Before the date of the agreement |
| Mode of payment | Cash | A/c payee cheque | A/c payee cheque |
| Stamp Duty value for the purpose of Section 50C | 28,50,000 | 30,50,000 | 22,00,000 |
Section 50C of the Income Tax Act safeguards the taxpayer against fluctuation in the value of property only when there is a significant gap between different stages of the sale of the property. In such a case, the value adopted by SVA is not considered the value for computing tax. If the date of registration of the property and the actual date of sale is not the same, the value adopted by SVA on the date of the agreement is considered the sale consideration for calculating tax.
However, this benefit is available only if at least a part of the sale consideration is received by an account payee cheque or bank draft, or ECS before the date of the property transfer.
The valuation officer is given a reference to help taxpayers and save them from hardships to determine the market value. Even after providing this reference, the value determined by the valuation officer or adopted by SVA, whichever is lower, is taken as sales consideration for calculating capital gains.
For example, if the value adopted by SVA is Rs 12,00,000 as against Rs 8,00,000 sale consideration claimed to be received by the seller, and the value determined by the valuation officer is Rs 15,00,000, sale consideration as per Section 50C will be Rs 12,00,000.
And if the value determined by the valuation officer is Rs 10,00,000, sale consideration for the purpose of capital gains will be Rs 10,00,000.
Yes, the stamp duty is considered a part of the cost of acquisition. The cost of acquisition is not just the basic price that the purchaser agrees to pay to the seller. When you enter into an agreement to purchase immovable property, you agree to pay registration fees, transfer fee, and stamp duty.
If the sale consideration of immovable property as per an agreement is less than the adopted fair market value of the property, the value of consideration is governed as per section 50C of the Income Tax Act.
Any fluctuation or difference in the actual sale value and the SVA adopted value is allowed by the income tax department up to a maximum of 10%. In other words, the difference between actual sale value and SVA adopted value should not exceed 10%.
