Sec 50 C of Income Tax Act was introduced by Finance Act 2002, with effect from 01-04-2003 i,e Assessment Year 2004-05. The main intention for introducing Sec 50 C was to curb the movement of unaccounted element in the Real Estate Transactions. Presence of Black Money is a curse to the economy, hence to avoid this few provisions were put forth in this section. This section applies only when the Stamp duty valuation is greater than the Sale value mentioned in the sale deed. Let us try to acquaint this section with an example:
Mr. Ram sells a piece of land for Rs. 30,00,000 to Mr.Lakshman, for which the cost price was 5,00,000 and the stamp duty valuation is Rs. 20,00,000. But Mr.Lakshman has only Rs. 15,00,000 in his account.( rest 15,00,000 of actual sale price is unaccounted). So the parties in the sale deed enter only 15,00,000 as sale price but they will pay stamp duty for 20,00,000. This transaction clearly shows the presence of Black Money to the extent of 15,00,000 with Mr.Lakshman.
Now the probable questions are:
1. What is the capital gain of Mr. Ram ?
2. How to treat the difference between stamp duty value and sale value as mentioned in sale deed in the hands of Mr.Lakshman.
Capital Gain:
Normally capital gain would be,
Value in sale deed – cost of asset = 15 – 5 = 10 lakhs.
But actually gain to Mr. Ram was 30 – 5 = 25 lakhs.
To avoid this, Sec 50 C recognizes the stamp duty valuation as sale price.
Hence Capital Gain will be 20 – 5 = 15 lakhs.
Therefore Mr. Ram has to pay capital gain tax on 15 lakhs and not 10 lakhs. By this section though unaccounted income cannot be pulled out completely, atleast to some extent the tax evasion can be curbed.
Treatment of difference Amount:
It is clearly evident that Mr. Lakshman has 30 lakhs with him out of which only 15 lakhs is accounted income and the remaining 15 lakhs is black money. To bring unaccounted income into economy, a new proviso was introduced to Sec 50 C from 01-04-2013. According to this provision difference between stamp duty value and value mentioned in sale deed will be taxed as “Income from other sources” in the hands of purchaser, Mr. Lakshman in the above case. Hence Mr. Lakshman should pay tax on 20 – 15 = 5lakhs under income from other sources.
Conclusion:
From the above example it is clear that assesses have to be careful and adopt stamp duty value as the sale value in the sale deed. Else, both buyer and seller will be taxed under different sources of income accordingly as discussed above. Indeed this section is a good move from the government to bring the unaccounted income into the economy. Hence Sec 50 C is a double edged sword which will sabotage both the parties.
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