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Stamp Duty Valuation of the Property: Taxation, Exception & Precaution
Stamp Duty Valuation or Ready Reckoner Valuation of the property is a benchmark price for taxation purpose & plays an important role in determining the tax liability. It now impacts not only the seller but also the buyers. Surprisingly, selling & purchasing the property below stamp duty valuation results in double taxation, in the hands of the seller & buyer both. For example, Mr. A has sold a property to Mr. B for Rs. 50 Lakh. The stamp duty value of the property was Rs. 75 Lakh. In such case, capital gain would be required to be calculated by taking Rs. 75 Lakh in the hands of Mr. A i.e., Income tax is applicable on an extra amount of Rs. 25 Lakh. Further, this Rs. 25 Lakh will also be taxable in the hands of Mr. B as “Income from Other Source” as it is presumed that Mr. B has earned the amount by purchasing the property below stamp duty valuation. One needs to be cautious while executing the transactions below the stamp duty valuations. There are few situations wherein stamp duty value may not be relevant or its impact could be reduced. Let us know about it:
- Stamp duty valuation will not be relevant for buyers & sellers if the difference doesn’t exceed 10% of the actual sale consideration (5% till FY 2019-20). For example, a person has sold the property for Rs. 50 Lakh and the stamp duty valuation is say Rs. 54.50 Lakh. In such case, the seller will be liable to compute the capital gain by taking the actual sale consideration of Rs. 50 Lakh only & not Rs. 54.50 Lakh. However, if the stamp duty valuation of the property is Rs. 55,00,001/- then the capital gain would be required to be computed by taking Rs. 55,00,001 only and not Rs. 50 Lakh or Rs. 55 Lakh. In short, even if the stamp duty valuation marginally exceeds 10% standard, entire Rs. 5,00,001/- will form the part of the capital gain. Law provides for taxation of not amount above 10% but of entire amount in such cases. Another interesting point which one must take care is that the variance up to 10% is permissible on actual sale consideration & not on stamp duty valuation. Taxpayers often get confused and assume it as 10% of the stamp duty valuation. In the above example, 10% of 55 Lakh is Rs. 5.50 Lakh and so few taxpayers form an opinion that if the property is sold for anything above Rs. 49.50 Lakh (i.e., Rs. 50 Lakh in the present case), no repercussion would be there. This is not true. If the taxpayer sells the property, say for Rs. 49.51 Lakh & the difference would be taxable as the difference between actual & stamp duty valuation is more than 10%.
- Another provision which has an overriding effect over section 50C is in case of Slump Sale. “Slump sale” is nothing but transfer of one or more undertakings or part of business concern as a going concern for a lump sum consideration without values being assigned to the individual assets/liabilities in such sale. In Case of slump sale, the capital gain is required to be computed at actual sale consideration only.
- There is an inconsistency in the provision of section 50C vis a vis section 56(2)(x) in case of sale to the specified relatives. If the property is purchased by a person from his specified relative, then the provision of section 56(2)(x) will not be applicable at all. However, it is not so in case of sellers. Even if the seller sells the property to his relative, still the seller will be liable to pay the tax on the basis of stamp duty valuation (subject to 10% permissible variance) & not on the basis of actual sale consideration.
- Section 50C is not applicable if the property is introduced by the partner in the firm by way of capital contribution. There is a specific provision u/s 45(3) as a result of which the value recorded in the books of accounts of the firm is take as full value consideration and the taxpayer shall be liable to pay tax on the basis of value recorded in the books of accounts and not on the basis of stamp duty valuation.
- One more situation which could ease the impact of Stamp duty valuation is when the agreement to sale was entered much before the sale deed and transaction is backed by payment through account payee instruments or digital mode. In such cases, stamp duty valuation of the date of agreement could be adopted instead of the stamp duty valuation of the date of sale deed.
- The rigor of stamp duty valuation u/s 50C could be reduced by taking the shelter of capital gain exemption provision u/s 54F. Subject to various stipulations, section 54F offers capital gain exemption to individuals / HUF if such person invests the amount of “Net Sale consideration” for purchase & consideration of a house property. For exemption u/s 54F, investment of “Net Sale Consideration” is important & not stamp duty valuation of the property sold. This view is affirmed by various ITAT & Courts. However, Bombay HC in Jagdish C. Dhabalia & Anr. Vs. Income Tax Officer & Anr (2019) 308 CTR 0295 (Bom) have held that Stamp Duty Valuation would be relevant for capital gain exemption u/s 54F. As A result, taxpayers residing in Maharashtra may not be able to take the benefit in such cases.
These are few of the instances whereby taxpayers could reduce the impact of section 50C or section 56 which levies the tax on the basis of stamp duty valuation.
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