Relaxation in Section 50C, 56 and 43CA regarding Taxing Circle Value

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House

At present, while taxing income from capital gains (section 50C), business profits (section 43CA) and other sources (section 56) arising out of transactions in immovable property, the sale consideration or stamp duty value, whichever is higher is adopted. The difference is taxed as income both in the hands of the purchaser and the seller. It has been pointed out that this variation can occur in respect of similar properties in the same area because of a variety of factors, including shape of the plot or location. In order to minimize hardship in case of genuine transactions in the real estate sector, it is proposed to provide that no adjustments shall be made in a case where the variation between stamp duty value and the sale consideration is not more than 5% of the sale consideration.

Existing provisions with example of proposed changes are as under:

Valuation of consideration in case of land or building or both [Sec. 50C]

In case of transfer of immovable capital asset being land or building or both, sale consideration shall be higher of the following:

  1. Actual consideration received or accrued on such transfer; or
  2. The value adopted or assessed or assessable by any authority of a State Government (i.e. Stamp Valuation authority) for the purpose of payment of stamp duty

Assessable means the price which the stamp valuation authority would have adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.

Proposal

Where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 105% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration

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Mr. Raj has a self-occupied house property acquired 10 months ago for ₹ 5,00,000. He sold such property for ₹ 6,00,000 to Rajshree. Stamp duty authority for the purpose of levying stamp duty adopted value of ₹ 6,25,000. Compute capital gain on such transfer.

Solution: Computation of capital gains in the hands of Mr. Raj

ParticularsExisting lawProposed law
Sale consideration
Being higher of stamp duty value or actual consideration6,25,000
As difference between actual consideration and circle value does not exceed 5%6,00,000
Less: Cost of acquisition5,00,0005,00,000
Short Term Capital Gain1,25,0001,00,000

Purchase of immovable property at concessional rate

If following conditions are satisfied, then the stamp duty value of such property less consideration paid, shall be considered as income of the previous year of the recipient:

  1. During the previous year, such person has received immovable property
  2. Such immovable property is received for a consideration
  3. Such consideration is less than the stamp duty value of the property by an amount exceeding ₹ 50,000.

Proposal

If following conditions are satisfied, then the stamp duty value of such property less consideration paid, shall be considered as income of the previous year of the recipient:

  1. During the previous year, such person has received immovable property
  2. Such immovable property is received for a consideration
  3. Such consideration is less than higher of the following:
    1. ₹ 50,000; and
    2. 5% of the consideration

Mr. Vikash has a self-occupied house property acquired 10 months ago for ₹ 15,00,000. He sold such property for ₹ 16,00,000 to Mr. Roshan. Stamp duty authority for the purpose of levying stamp duty adopted value of ₹ 16,75,000. Analysis the case in hands of Mr. Roshan.

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Solution: Consequences in hands of Mr. Roshan

Existing Law: Since the difference between stamp duty value of the property and actual consideration exceeds ₹ 50,000, hence, the provision of sec. 56(2)(x) is applicable. Thus, ₹ 75,000/- shall be treated as income u/s 56(2)(x).

Proposed Law: Since the difference between stamp duty value of the property (i.e., ₹ 16,75,000) and the actual consideration (i.e., ₹ 16,00,000) does not exceeds the higher of the following:

    1. ₹ 50,000
    2. 5% of the consideration i.e., ₹ 80,000

Hence, the provision of sec. 56(2)(x) is not applicable.

Or in other words, the difference between stamp duty value of the property (i.e., ₹ 16,75,000) and 105% of the actual consideration (i.e., ₹ 16,80,000) does not exceeds ₹ 50,000, hence, the provision of sec. 56(2)(x) is not applicable.

Similarly section 43CA has also been proposed to amend in the same line.

Your comments are invited.

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