Query 1]

My father gifted two houses to me in the year 1969. In these houses, there are two old tenants, who are paying very meager rent. I want to sell the said houses but no buyer is ready to give the price as per the market rate or Ready Reckoner price as they are old tenants. The ready reckoner price is about Rs. 40,00,000/-for one house. Now, one of the tenants wants to purchase one house but he is not ready to purchase it at as per the market rate or ready reckoner price. He wants to purchase the same for Rs. 25,00,000/- for which I am also ready to sell. My questions are regarding Capital gain.

  1. Can I invest the price of house which I have received from the purchaser in bonds or purchase a flat?
  2. If I do not invest the said amount in bonds or purchase new flat, whether I will be liable to pay Capital gain tax on amount of Rs 25 Lacs or I have to pay the tax on Rs 40 Lacs which is Ready Reckoner price?
Sir, you are requested to please guide me through this query and provide the best suitable option. Thanking you in anticipation. [saamir75@gmail.com]


With so many frequent changes, it’s time to revisits the taxation of real estate transactions in the Income Tax Act-1961. In normal course, income-tax is payable on real income and not notional income. Unfortunately in the recent past, country has witnessed many unpleasant changes in tax laws to tax even notional income. Few such provisions related to real estate transactions are incorporated in section 50C, 43CA & Section 56 of the Income-tax Act. Taxpayer who are not much aware of the ongoing changes in the tax laws may be shocked to learn that paying stamp duty on a higher valuation than the actual sale price has greater tax consequences, for the purchaser as well as seller. Tax on notional income is levied in the hands of seller as well as purchaser in such cases:
a] In the hands of Seller:
Under section 50C & 43CA, wherever the stamp duty valuation (ready reckoner, guideline value or circle rate, by whatever name it may be referred) of the property sold is higher than the actual sale price, income tax is required to be worked out by replacing such higher stamp duty value instead of actual sale proceeds. Of course, there is no tax issue involved if the sale price is higher than stamp duty valuation as income would be computed on the basis of actual sale price only in such cases.
b] In the hands of Purchaser:
By the Finance Act-2013, Section 56(2) has been amended with effect from 01.04.2013 so as to provide that even if the immoveable property is received for an inadequate consideration (i.e., if the stamp duty valuation of the property is more than the actual purchase price) and the difference between stamp duty valuation and actual purchase price is more than Rs.50,000/-, then such difference shall be taxable in the hands of the individual or HUF as “Income from Other Source”. [However, the difference would not be taxable in the hands if the purchaser is a “Relative” of the seller within the meaning given in explanation to section 56(2)(vii). The meaning of relative as mentioned above can be accessed at www.nareshjakhotia.blogspot.com].


After reading the provision, taxpayers may rightly conclude that purchasing the property below the stamp duty value is also taxing now. It would make two people pay tax on the same transaction. If the seller has transferred immoveable property at a price lower than the stamp duty value, then the seller would pay tax based on stamp duty value & on the other side, even the buyer is also liable to pay tax on the difference between the stamp duty value & actual purchase price of the property.


Taxing the income on notional basis may seem illogical, irrational or unscientific. The law cause real hardship to honest taxpayers who declare the full value of consideration in the transfer instrument, and then end up paying tax on unreal or notional income. The fact remains, income tax is not always on the real or actual income. It is improper to deem a higher sale consideration without specific material to prove that the transferor got any money in addition to what was shown in the sale agreement or conveyance deed. Income tax law admittedly ignores the fact that that the stamp duty values are fix by the state government in their effort to raise higher revenues. It also ignores various factors like quality of construction, amenities available or specific location advantage/disadvantages, distress sale, Vastu dosh, tenanted premises, etc.

Taxpayers have an option to claim the lower value before the Assessing Office who can then refer it to a valuation officer for valuing the property. But, these are not really effective or accommodative for the taxpayer & there is no remedy or option to the taxpayer but to pay tax to buy a peace of mind. Ideally, the valuation may be challenge before the appropriate authorities to avoid the rigor of notional taxation in such cases.
In your specific case,
  1. You can save tax u/s 54 by investing the amount of capital gain (calculated on the basis of Rs. 40 Lacs) towards purchase of another residential house property. Option of saving tax u/s 54EC by investing the amount of LTCG in specified bonds issued by NHAI/REC is also there.
  2. As elaborate above, you would be require to pay the LTCG tax by taking Rs. 40 Lacs as sale consideration (& not Rs. 25 Lacs).

Query 2]

Can we adjust the TDS (vide Form No. 16B) paid on sale of property from the total tax payable by me? Please reply.  [Aravind Babu & Associates- aravindbabu27@ymail.com]


Credit is available to the seller towards the Tax deduction (TDS) done by the purchaser in the property transaction.


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