The safest place to dwell for anybody in this world is his/her house. Real estate is not only about selling and buying of properties but it is closely attached with one’s emotions too, barring the laundering of black money and fraudulent transactions related to it, real estate business is good to go with. To curb all such acts, one of the measures introduced by the Finance minister was the initiation of section 50C of Income tax Act, 1961, vide Finance Act, 2002, w.e.f 01-04-2003. Let’s learn in depth about the provisions and applicability of said section below.
Profits or gains resulting from the sale of a ‘capital asset’ are capital gains. Capital gains arise when you sell a capital asset for an amount, which is higher than its acquisition value. Similarly, in case there is a decrease in the value of an asset with respect to its purchase price, a capital loss is suffered.
A realised capital gain occurs only when you essentially sell the asset at a higher price than its original purchase price.
There have been prosecutions in the past where the value of the asset on the date of agreement to sell and actual sale differs due to economic factors. In such cases, considering value adopted by Stamp Value Authority (SVA) as sale consideration would cause undue suffering to taxpayers. In order to remove this incongruity in the law and provide relief to the taxpayers, an amendment was made in 2016. As per this amendment, in case the date of the agreement fixing the sale consideration and actual date of registration of sale of land or building are not same, value adopted by SVA as on the date of agreement can be taken as sale consideration.
Stamp Value Authority (SVA) – Stamp duty value means the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty.
In case the value determined by the valuation officer is higher than the Value by SVA, the ultimate value will be considered as the same determined by SVA as per Section 50C.
For Instance, if value adopted by SVA is Rs 17, 00,000 as against Rs 10, 00,000 sale consideration claimed to be received by seller and value determined by valuation officer is Rs 19, 00,000, sale consideration as per Section 50C will be Rs 17, 00,000.
In the same example if value determined by valuation officer is Rs 12, 00,000, sale consideration for the purpose of capital gains will be Rs 12, 00,000.
Full value of the consideration is nothing but the full sale price actually paid without any deduction whatsoever.
As per amendment made in 2013, Section 56(c) (vii) explains about the tax treatment in the hands of buyer. As per this if the buyer below the circle rate and the difference in the purchase of the property and the circle rate is more than Rs 50,000 such difference would be assumed to be income of the purchaser and will be chargeable to tax.
Let’s say if Anand purchases a property from Babloo for Rs 60 lakhs, and the stamp duty value is Rs 80 lakhs. The tax treatment in the hands of the seller (Anand) will be taxed under the head Capital Gains i.e. Rs 60 lakhs. The tax treatment in the hands of buyer (Babloo) would be deemed as income of the buyer and taxed under Income from other sources. i.e. (80 lakhs- 60 lakhs = 20 lakhs).
Section 50C examines the tax treatment in the hands of the seller as already discussed above.
Cases Related to Section 50C
There were some famous litigation related to section 50C. Let’s discuss some of them:
How can I avail the benefit of section 50C if the selling price is lower than the value adopted by SVA?
In order to avail the benefit, u/s 50C at least a part of sale consideration is to be received by way of account payee cheque or bank draft or on or before date of agreement of transfer.
Does section50C apply to a gift of a flat to a non-relative? What would be the implication u/s 50C as well as u/s 56(2)(vii), if such gift is revoked afterwards?
A gift to non-relative would attract section 56(2) and would be assessed in the hands of the recipient. In such cases, provisions of section 50C will not be applicable. Section 50C would be attracted when there is a transfer of capital assets having consideration [see Sunil Siddhartha v. CIT (156 ITR 509 – (SC)]. Thus, if there is no consideration then section 50C would not be attracted.