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.

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Frequently Asked Questions

Common questions about Section 50C Income Tax Act: Capital Gains & Property Valuation.

Section 50C of the Income Tax Act is a provision that aims to bring unaccounted money resulting from property transactions into the tax net. It mandates the use of the value adopted by the Stamp Valuation Authority (SVA) for calculating capital gains on the sale of land or buildings, if the sale consideration is less than the SVA value.

The Stamp Valuation Authority (SVA) is a state government authority that assesses or adopts a value for the payment of stamp duty on property transactions. The value adopted by the SVA is considered the actual capital gain for tax purposes, unless it exceeds the sale consideration by more than 5%.

Under Section 50C, if the sale consideration received by the seller is less than the value adopted by the SVA, the SVA value is deemed to be the actual capital gain for tax purposes. This prevents undervaluation of properties in sale agreements to evade taxes.

Yes, the seller can dispute the SVA value if they believe it exceeds the fair market value of the property. In such cases, the income tax officer can refer the valuation to a valuation officer, who will determine the market value after providing the taxpayer an opportunity to be heard.

If the buyer purchases a property at a value lower than the SVA value, the difference between the SVA value and the purchase value is taxable as "Income from other sources" for the buyer.

The Finance Act, 2019, has amended Section 50C to include other electronic modes of payment, in addition to account payee cheques, bank drafts, and electronic clearing systems, for the purpose of determining the consideration received or accruing from the transfer of a capital asset.

Section 50CA is a new proviso introduced by the Finance Act, 2019, which states that the provisions of this section may not apply to certain classes of persons and subject to certain conditions, as prescribed.

Section 50D deals with situations where the consideration received or accruing from the transfer of a capital asset cannot be ascertained or determined. In such cases, the fair market value of the asset on the date of transfer is deemed to be the full value of the consideration received.

If the SVA value is revised in an appeal, revision, or reference after the assessment, the assessment will be amended to recompute the capital gains using the revised SVA value as the full value of consideration, as per the provisions of Section 154.

Section 50C was introduced to curb the practice of tax manipulation or evasion by undervaluing properties in sale agreements. By mandating the use of the SVA value for calculating capital gains, it brings any unaccounted money resulting from property transactions into the tax net.