PURCHASE & SALE OF IMMOVABLE PROPERTY BELOW STAMP DUTY VALUE & INSTANCES WHEN NOTIONAL INCOME WILL NOT BE TAXABLE
By: Manjiri S. Gupta
(The author is an Article Assistant at SSRPN & CO. Nagpur. She can be approached at cassrpn@gmail.com)
Section 56(2)(x) of the Income Tax Act, 1961 states that if a person receives any property for a consideration less than the stamp duty value, than the difference between the consideration and the stamp duty value exceeds:
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The amount of Rs. 50,000 or
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the amount equal to 10% of the consideration
whichever is higher would be taxable in the hands of the assessee and chargeable under the head Income from Other Sources.
As per section 56(2)(x) ‘Property’ means the following capital assets of the assessee-
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Immovable property being building or land or both;
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Shares and securities;
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Jewellery;
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Archeological collection;
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Drawing;
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Painting;
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Sculptures or any work of art;
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Bullion.
The above mentioned meaning is exhaustive, therefore any other property whether movable or immovable shall not be subject to tax under section 56(2)(x) as per Income Tax Act, 1961.
It must be noted that this section applies to specified property which is in nature of capital asset to the recipient and not stock in trade, raw material or consumable stores of any business of the recipient. So, if an assessee purchase rural agriculture land or land as stock in trade below stamp duty value than it will not be liable to income tax as it is not included in the meaning of property as stated above.
To understand the above provision properly here is a case study:
On 1.1.2021 Mr. Anmol entered into an agreement of sale of building to Ms. Arya for Rs. 60 Lakhs. Ms. Arya made an advance payment of Rs. 15 Lakhs on 1.1.2021 through cheque. The stamp duty value on the date of agreement was 68 Lakhs. Mr. Anmol purchased this property on 1.1.2019 for Rs. 20 Lakhs.
Ms. Arya makes the balance payment of Rs. 55 Lakhs on 30.6.2021 and gets the property registered in her name on that date when the stamp duty value increased to 80 Lakhs. Possession was also transferred to her on 30.6.2021.
Let us examine the tax liability of the transaction in the hands of Mr. Anmol and Ms. Arya, if:
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Both Mr. Anmol and Ms. Arya treat it as capital asset.
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Both Mr. Anmol and Ms. Arya treat it as stock in trade.
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Mr. Anmol treats it as capital asset but Ms. Arya treat it as stock in trade.
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Mr. Anmol treat it as stock in trade but Ms. Arya treats it as capital asset.
Let us see the solution:
Case 1: Both Mr. Anmol and Ms. Arya treat it as capital asset.
In the hands of Mr. Anmol
Income under the head Capital Gain
Sale Consideration (as per sec 50C) |
Rs. 80 Lakhs |
Less: Cost of Acquisition |
Rs. 20 Lakhs |
Short term Capital Gain |
Rs. 60 Lakhs |
In the hands of Ms. Arya
Income under the head other sources [Sec 56(2)(x)] – Rs. 8 Lakhs
Cost of acquisition shall be Rs. 58 Lakhs.
Case 2: Both Mr. Anmol and Ms. Arya treat it as stock in trade.
In the hands of Mr. Anmol
Income under the head Profit & Gain From Business or Profession
Sale Consideration |
Rs. 68 Lakhs |
Less: Cost of Acquisition |
Rs. 20 Lakhs |
PGBP |
Rs. 48 Lakhs |
In the hands of Ms. Arya
Income under the head Other Sources shall be nil as she purchased as stock in trade and not as capital asset.
Cost of acquisition shall be Rs. 60 Lakhs.
Case 3: Mr. Anmol treats it as capital asset but Ms. Arya treat it as stock in trade.
In the hands of Mr. Anmol
Income under the head Capital Gain
Sale Consideration (as per sec 50C) |
Rs. 80 Lakhs |
Less: Cost of Acquisition |
Rs. 20 Lakhs |
Short term Capital Gain |
Rs. 60 Lakhs |
In the hands of Ms. Arya
Income under the head Other Sources shall be nil as she purchased as stock in trade and not as capital asset.
Cost of acquisition shall be Rs. 60 Lakhs.
Case 4: Mr. Anmol treat it as stock in trade but Ms. Arya treats it as capital asset.
In the hands of Mr. Anmol
Income under the head Profit & Gain From Business or Profession
Sale Consideration |
Rs. 68 Lakhs |
Less: Cost of Acquisition |
Rs. 20 Lakhs |
PGBP |
Rs. 48 Lakhs |
