Section 50C is applicable only to land or building or both. Section 50C uses value adopted by the Stamp Valuation Authority (SVA) for the purpose of levying stamp duty on registration of properties, as guidance value to determine undervaluation of land or building if any in the sale agreement.
As per section 50C, the calculation of capital gain of the sale of land or building or both is held as a capital asset. Further, this Section is not applicable in the case of land or building or both are held as stock. This present blog pays attention to ‘Section 50C of the Income Tax Act,1961’.
Capital Gain
Capital gains are income on the sale of any wealth in the hands of the seller. A capital asset includes various assets including real estate. So, any gain on the sale of land or building by the owner is taxable as a capital gain. Sale consideration reduced by the cost of acquisition (cost of acquisition for land or building held for more than 24 months) is taxable as a capital gain.
As per the Income Tax Act, capital gains tax in India must not be paid in case of the individual inherits the property and there is no sale. Though, if the person who has inherited the property decides to sell it, the tax will have to be paid on the income that has been generated from the sale. These are some examples of capital assets jewellery, trademarks, patents, vehicles, machinery, leasehold rights, house property, buildings, and land.
Section 50C of the Income Tax Act, 1961
Section 50C talks about the calculation of capital gain of the sale of land or building or both which is held as a capital asset. According to this section, the cost of sale consideration should not be less than the stamp duty cost which is assessed by the Stamp Valuation Authority. Nevertheless, a Marginal relief of 10% difference is allowed by the income tax department. Further, this Section is not applicable in the case of land or building or both are held as stock.
In case of a sale, consideration received or claimed to be received by the seller on the sale of land or building or both is less than the cost adopted by stamp valuation authority, such cost adopted by SVA would become actual sale consideration received or increasing to the seller. Consequently, capital gain would be Valuation according to stamp valuation specialists reduced by the cost of acquisition.
Calculation of Capital Gain under Section 50C of the Income Tax Act, 1961
The following table shows the way to calculate the Capital Gain under the section 50 C of the income tax act, of 1961:
| Particular | amount |
| The full value of consideration: Sale value or stamp duty value (Higher)
| … |
| Less: Expenditure about the transfer
| … |
| Net Consideration
| … |
| Less: Cost of Acquisition
| … |
| Less: Cost of Improvement
| … |
| Capital Gain/loss
| … |
But, where the Stamp duty value is a maximum of 110% of consideration, then those sale considerations shall be treated as Full Value of Consideration
Conditions for Applicability under Section 50C
- It is held on capital asset
- There is a transfer of land or building or both
- Whether it is Long Term Capital Asset or Short Term Capital Asset
- The asset can be depreciable or non-depreciable.
What is Stamp Duty?
Stamp duty value means any value adopted by any authority of the Central or State Government for the determination of payment of stamp duty for the immovable property.
Under section 50C, while calculating capital gain ascending on the transfer of land or building or both, if the actual sale consideration of such land and/or building is less than the stamp duty value, then the stamp duty value will be taken as the full value of consideration.
Calculation of Stamp Duty under section 50C of the Income Tax Act, 1961
The stamp duty value is calculated by the Stamp Valuation Authority. Conversely, the stamp duty on the date of the agreement may be different from the stamp duty value on the date of registration.
Following are the 2 possible scenarios in this case:
- Take the stamp duty value on the date of the agreement:
- Fully or partially of consideration has been known before the date of the agreement and;
- Payment should be made through account payee cheque/draft or as per prescribed electronic mode.
- Take stamp duty value on the date of registration
| Particulars | Situation 1 | Situation 2 | Situation 3 |
| Stamp duty value on the date of Agreement
| … | … | … |
| Stamp duty value on the date of Registration
| … | … | … |
| Payment of consideration
| … | … | … |
| Mode of payment
| … | … | … |
| Stamp Duty value for Section 50C
| … | … | … |
There can be different honest reasons among the parties for having a transaction of sale of land or building for a consideration lower than the cost agreed by the Stamp Valuation Authority. Section 50C of the income tax Act provides protection only against variability in the cost of the property caused due to a considerable gap between different stages of the transaction of sale.
Further, there have been many litigations in the past where the value of the asset on the date of agreement to sell and actual sale varies due to economic aspects such as demand and supply.
What Happens If the Selling Price Is Lower Than the Value Adopted by SVA?
While there can be varied genuine reasons between the parties for having transaction of sale of land or building for a consideration lower than the value adopted by SVA, Section 50C provides safeguard only against fluctuation in the value of property caused due to considerable gap between different stages of transaction of sale.
To explain this further, there have been litigations in the past in cases where the value of the asset on the date of agreement to sell and actual sale differs due to economic factors such as demand and supply.
In such cases, considering the value adopted by SVA as sale consideration would cause undue hardship to taxpayers by compelling them to pay tax on something that is never received.
In order to remove this anomaly in the law, Finance Act 2016 amended Section 50C. As per the amendment, in case the date of agreement fixing the sale consideration and actual date of registration of sale of land or building is not the same, the value adopted by SVA as on the date of agreement can be taken as sale consideration.
However, in order to avail this benefit, at least a part of sale consideration is received by way of account payee cheque or bank draft or ECS on or before date of agreement of transfer. This amendment provides relief to taxpayers involved in sale of land or building as generally negotiations take considerable amount of time.
What Happens If the Seller Does Not Accept the Value Adopted by SVA?
There is a possibility that the value adopted by SVA may not be depicting the Fair Market Value (FMV) at all times or the seller himself may not be satisfied with the value adopted by SVA based on factors known to him.
Though, stamp duty is generally borne by purchaser, the purchaser may not be very concerned with the value adopted by SVA given that the amount he would be shelling out by way of stamp duty would be meagre compared to cost of purchase.
However, it makes a huge difference to the seller as it impacts his income tax which can be substantial based on the value. If stamp duty is not borne by the seller, he may not be to question or contend the value adopted by SVA before the valuation authorities.
As it is a matter of income tax for the seller, he is allowed to question the value adopted by SVA and claim the value is more than FMV under Section 50C before the income tax authority unless such value is already questioned before any other authority or court.
In such cases, income tax officer is required to make a reference to valuation officer and market value will be determined by such valuation officer. Valuation officer, while determining market value, has to call for records/documents from taxpayer if required and give taxpayer an opportunity of being heard and pass an order in writing, stating his valuation. Any value determined by the valuation officer can also be questioned before higher authorities.
What Happens If the Value of Valuation Officer is Higher Than the Value SVA?
To determine the market value, a valuation officer is provided with a reference to benefit the taxpayer and save him from undue hardship. Such reference provided to the valuation officer does not impact the taxpayer in a negative way. Even when a reference is made to valuation officer, the value determined by valuation officer or adopted by SVA, whichever is lower will be taken as sale consideration for computing capital gains.
For example, if value adopted by SVA is Rs 12,00,000 as against Rs 8,00,000 sale consideration claimed to be received by seller and value determined by valuation officer is Rs 15,00,000, sale consideration as per Section 50C will be Rs 12,00,000.
In the same example if value determined by valuation officer is Rs 10,00,000, sale consideration for the purpose of capital gains will be Rs 10,00,000.
FAQs
What does Section 50C of the Income Tax Act, 1961, deal with?
Section 50C deals with the computation of capital gains in the case of transfer of immovable property when the sale consideration declared by the taxpayer is less than the value adopted or assessed by the stamp valuation authority.
When does Section 50C apply?
Section 50C applies when an assessee transfers an immovable property, and the sale consideration declared by the taxpayer is less than the value adopted or assessed by the stamp valuation authority.
What is the purpose of Section 50C?
The primary purpose of Section 50C is to prevent undervaluation of immovable properties for the purpose of reducing the amount of capital gains on the transfer of such properties.
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