Section 50C of Income Tax Act

Section 50C was drafted into the ambit of income tax as a solution to the unaccounted money resulting out of property transactions. The provisions of the section apply to both land and building. In this article, we discuss Section 50C of the Income Tax Act.

Capital Gains Computation

Gains arising out of the sale of land or building are classed under capital gains. The consideration of sale reduced by the cost of acquisition would be taxed under this head. The provision of section 50C was enacted in the year of 2002 due to the practice of tax manipulations, or tax evasion. The measure was aimed at curbing these practices and bringing any unaccounted money into the tax net. The provisions of the Income Tax Act mandate the utilization of value adopted by the Stamp Valuation Authority (SVA) for the purpose of calculating capital gains on a property transaction. The value is considered to be a guideline to identify any undervaluation of land or building in the sale agreement. If it is found that the gains received or claimed to be received by the seller is less than the value adopted by the authority, the value adopted by the SVA would be termed as the actual gains received or accrued to the seller. Hence, the valuation as per stamp valuation authority has always been considered as the capital gain, until Budget 2018 conveyed that no adjustments are to be made if the variation between stamp duty value and the sale consideration is confined to five per cent of the sale consideration.

Stamp Value Authority

Stamp Value Authority (SVA) is the value adopted, assessed or considered assessable by any State Government authority for the payment of stamp duty. However, the value adopted assessed or assessed or assessable by the stamp value authority that does not exceed 105% of the consideration that is accruing or received as a result of the transfer. The consideration so received or obtained as a result of the transfer that may be for the purpose of Section 48 shall be deemed to the full value of the consideration. In other words, there can be variation found between the stamp duty price and the actual consideration for the purpose of section 50C which is not more than 5% of the actual consideration.

Sale Consideration

The date of the agreement fixing the consideration amount and the date of registration for the transfer of the capital assets should match with the value adopted or assessed or assessable by the value of consideration for such transfer. However, the first proviso would apply only in specific cases where the consideration amount or a part has been received by way of account payee cheque or account payee bank draft or by the electronic clearing system through a bank account.

Section 50C(1)

As per the Finance Act, 2019 that has amended sections 50C(1) as to include such other electronic mode as prescribed, in addition to the existing permissible modes of payment in the form of an account payee cheque withdrawn on a bank or an account payee bank draft or the electronic clearing system (ECS) through a bank account.

Valuation

The Accessing Officer may on the basis of the claim that has been made by the assessee refer to the valuation of the relevant asset to a valuation officer with subject to the section 55A of the Income Tax Act. The following conditions should be satisfied, where the valuation can be referred to the valuation officer:

The assessee claims before the Accessing Officier that the value that is adopted or assessed by the stamp valuation authority exceeds the actual fair market value of the property as on the date of transfer.
The value assessed or adopted or assessable by stamp valuation authority has not been disputed, in any appeal or reference or revision before any authority or court.

Consequences

If the fair market value that is determined by the Valuation Officer is less than the value that is adopted for the stamp duty purposes, the value of consideration will be the same as the amount stated by the taxpayer in the return of income. However, if the fair market value that is determined by the Valuation Officer is more than the value that is adopted or assessed or assessable for the stamp duty purposes, the Assessing Officer is allowed to determine a value more than the value assessed or adopted or assessable for the stamp duty purposes. If the value adopted or assessed for the stamp duty purposes is subsequently revised in any appeal, revision or reference, the assessment that has been made would be amended to recompute the capital gains by using the revised value as the full value of consideration and the provision of section 154 would be applied.

Questioning the SVA Value

There might be scenarios wherein the value adopted by the SVA is not reflective of the Fair Market Value (FMV) or the seller may feel unjustified of the value adopted by the SVA. The amended version of Section 50 entitles a seller to question the value adopted by the SVA and claim it to be more than the FMV, except if the value is already taken up before any other authority or court. Under these circumstances, the income tax officer calls upon the valuation officer to determine the market value. Prior to the determination, the latter may call for records and documents from the taxpayer. The officer is obligated to provide the taxpayer with an opportunity of being heard.

Tax Liability of Buyers

As per Section 50C of the Income Tax Act, the buyer of a property will be taxed on the difference between the stamp duty value and the purchase value if the buyer is in the receiving end of a difference. For example, if the buyer is purchasing a property worth Rs. 80 lakhs for a sum of Rs. 50 lakhs; Rs. 30 lakhs would be taxed under the head “Income from other sources.”

Section 50CA

The Finance Act 2019, has amended a new proviso to section 50CA which states that the provisions of this section would not be applied to any consideration that has been received or accruing as a result of a transfer by such class of persons and they are subjected to such conditions as it is prescribed.

Section 50D

The consideration that has been received or accruing as the result of the transfer of a capital asset by an assessee (not ascertainable or cannot be determined) then, for the purpose of calculating the income that is chargeable to tax as capital gains, the fair market value of the asset on the transfer date would be deemed to be full value of consideration received as a result of such transfer.