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Section 50C – Tax on Sale of Immovable Property, Land or Building

Last Update Date : August 11, 2018

tax on sale of immovable property

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.

What are Capital Gains?

In terms of your capital gains, the Income tax department breaks them into two main categories: short-term and long-term. A short-term gain is gain on the sale of assets held 1 year or less. A long-term gain is gain on the sale of assets held over one year. Short-term capital gain is taxed at the same tax rate as your wages. Long-term capital gains are taxed at reduced rates (generally, 0%, 15%, and 20%).Capital gains can be on Investment made, on Real estate and other property, selling your home, or inherited property.

What is Section 50C?

  • With effect from 1st April 2003 i.e. from A.Y. 2003-04, Section 50C of Income Tax Act, 1961 states that if the value stated in the instrument of transfer is less than the valuation adopted or assessed or assessable by the stamp duty authorities, such valuation of the stamp duty authorities will be considered as the sale consideration for the purpose of computation of capital gains arising on transfer of land or building or both. Hereby this provisions apply to transfer for a consideration of land or building if only held as capital asset at the time of such transfer. Thus, transactions of flats, shops, galas, factories being parts of buildings, etc. are covered by the provisions of section 50C.
  • Value “assessable” by the stamp valuation authority basically means that the price which would have been adopted/assessed had the transaction been referred to such valuation authority for the payment of stamp duty., as per amendment in 2009. Prior to this it had been held in many cases that the transfer of property must first be registered for the purpose of payment of stamp duty. Now, by virtue, of this amendment, the income-tax authorities are free to refer the property to stamp valuation authority irrespective of whether the same has been registered for stamp duty purposes or not.

What Happens if the Selling Price is Lower than the Value Adopted by SVA?

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.

What does SVA mean?

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.

What Happens if the Value of Valuation Officer is Higher than the Value by SVA?

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.

What is Full Value of Consideration?

Full value of the consideration is nothing but the full sale price actually paid without any deduction whatsoever.

Tax Treatment in the Hands of Buyer

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).

Tax Treatment in the Hands of Seller

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:

  1. Section 50C will apply only when the transferred immovable property is liable to tax under the head capital gains. Where the immovable property is stock-in-trade of the transferor, the provisions of section 50C will not apply [ CIT v. Thiruvengadam Investments (P.) Ltd. [2010] 320 ITR 345 (Mad.)].
  2. The issue before the Supreme Court in CIT v. Amarchand N. Shroff [1963] 48 ITR 59 was whether the amounts received by the legal representatives of A could be taxed in their hands the Supreme Court following its earlier decision in Bengal Immunity Co. Ltd. v. State of Bihar AIR 1955 SC 661 and after observing that “legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that legitimate field” held that they (the receipts) could not be said to be income which might be deemed by fiction to have been received by the deceased A.

Key Take Aways

  • On receipt of valuation report from the Valuation Officer, the Assessing Officer has to compare the fair market value as determined by the Valuation Officer with the valuation done by the Stamp Valuation Authorities under the Stamp Duty Act and with the apparent sale consideration shown by the assessee in the sale deed;
  • Where valuation done by the Valuation Officer is more than the valuation done by the Stamp Valuation Authorities (SVA) then valuation done by the SVA would be taken as full value of consideration and capital gains will be calculated accordingly;
  • If valuation done by the Valuation Officer is less than the valuation done by the SVA then valuation done by the Valuation Officer would be adopted as full value of consideration as against the apparent consideration shown by the assessee or the valuation done by the SVA and capital gains be calculated accordingly;
  • lf valuation done by the Valuation Officer is less than the valuation done by the SVA as well as sale consideration shown by the assessee in the sale deed then apparent consideration shown in the sale deed would alone be accepted as full value of consideration and capital gains be calculated accordingly, i.e. as shown by the assessee.

Frequently Asked Questions

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.

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