Transfer of Immovable Properties on Sale Consideration less than Stamp Duty Valuation

Dear Friends,

You know that as a citizen we have tendency to save/avoid/evade taxes by adopting various tricks and transactions. A lot of black money is generated through transfer of various types of immovable properties. The seller and the purchaser generally mutually agree on a transaction to enter into agreement at a price lower than the Fair Market Value of property to save stamp duty and to reduce Income tax as well as Capital Gain Tax in case of resale of properties. These types of transaction have generated huge black or accounted money in the market.

The Central Government has introduced, Section 50C of the Income Tax Act, 1961 to curb such practices in real estate sector and to reduce generation of black money.

The provisions of Section 50 C have been applied if the following conditions are satisfied;

1. There must be transfer of land or building or both. The asset may be Long Term Capital Asset or Short term. It may be depreciable asset or non-depreciable asset.
2. The sale consideration on which that asset has been transferred is less than the value assessed or assessable by any State Government or Central Government authorities or Stamp Duty Value, as assessed by Stamp Duty Authorities in the state.

Please Note That

1. If above both conditions are satisfied then the value adopted by Stamp Duty Authorities shall be taken as Sale Consideration for transfer of the asset as Full Value of Consideration.
2. In this case the assessee has power to dispute the Stamp Duty Valuation, and then the stamp duty finally assessed will be taken as Full Value of Consideration. In this case Assessing Officer will forward the case with Departmental Valuation officer of the Income Tax.
3. Section 50C is applicable in only in case of Capital Assets, whether it is land or building or both.
4. It is also applicable in case when right to develop a property is transferred.
5. No Notice is required to invoke provisions of Section 50C by AO to assessed.
6. It is applicable to transferor of the Capital Assets not the Transferee.

Let's consider an example: Suppose Mr. A (Cost of acquisition Rs. 15 Lacs), has sold his flat to Mr. B for Rs. 50 Lacs, Stamp Duty value is Rs. 70 Lacs.

Now in this case the Sale Consideration will be

1. Rs. 50.00 Lakhs or
2. Rs. 70.00 Lakhs, whichever is higher.

Taxability of above transaction

1. Mr. A: Income under Capital gain will be charged on = Rs. 70-Rs. 15 Lacs = Rs. 55 Lacs (Sec 50C)
2. Mr. B: Income under Income from other sources = Rs 20 Lacs

PROVISIONS OF SECTION 43CA

Now we have understood that the provisions of Section 50C are applicable only on transfer of Capital Assets not assets kept as Stock in trade in case of builders and developers are real state entities.

The developers during the construction of their buildings transfer flats, shops or other properties below the Market Value or Stamp Duty Value to the perspective buyers. The difference between the sale consideration and the Stamp Duty value or market value will be taken in form of cash. This will again generate black money and less tax will be paid to the government on this type of transactions.

The Central Government, through Finance Act, 2013, applicable from 01.04.2014, introduced new provisions of Section 43CA with effect from the assessment year 2014-15.

Since provisions of Section 50C are not applicable for calculating income under Section 28 of the Income Tax Act, 1961.

Section 43CA provides that

Where the consideration for transfer of asset (other than capital asset), being land or building or both, is less than the stamp duty value, the value so adopted (or assessed or assessable) shall be deemed to be full value of the consideration for the purpose of computing income under "Profits and gains of business or profession."

This way transfer of Stock in trade has been also covered and any transfer of the same on a consideration below the stamp duty valuation will be covered under this provision.

When date of agreement and date of registration is not the same

When date of Agreement and the date of registration is not the same, then the Stamp Duty on the date of Agreement will be considered. This case will be applicable only when some consideration has been received on or before the date of agreement.

Dispute by Assessee

If assessee has disputed the valuation made by Stamp Duty Authorities and claim that the Market value of the property is less than the Stamp Duty Assessed. In this case the Assessee Officer may refer the case to Valuation Officer according to provisions of Section 55A of the Income Tax Act, 1961.

Example: Lets us consider M/s. XYZ Private Limited has transferred a Shop to one of its Director at Rs. 4.00 Cr., but Stamp Duty Valuation of the shop is Rs. 7.00 Cr., now in this case the difference between Stamp Duty Value and Sale Consideration is Rs. 3.00 Cr., and same will be chargeable in the hand of M/s. XYZ Private Limited as "Income from Business or Profession" during the year in which it is transferred.

Income in hand of Director is NIL, since it is stock in trade.

Note: Provisions of Section 43CA are not applicable on depreciable assets. It is applicable to both transferor and the transferee.

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