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S&A Knowledge Series - Sec 50C implications under income tax act


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Please find attached a writeup on Sec 50C of the Income Tax Act, 1961 with the latest amendments of the Finance Act 2020.

Sec 50C deals with the deemed income under the Income Tax Act in case of the difference between actual sale value and the defined circle rate value. This section applies only to capital gains and not to business assets such as closing stock.

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S&A Knowledge Series - Sec 50C implications under income tax act

  1. 1. Page | 1 ` Section 50-C of the Income Tax Act, 1961 S&A Knowledge Series Prepared by Abhay Tripathi Article Assistant at Seth & Associates, Chartered Accountants New Delhi | Lucknow | Coimbatore
  2. 2. Page | 2 INTRODUCTION TO SEC 50C In order to plug the prevailing black money in real estate transactions the government vide finance Act 2002, introduced section 50C with effect from 1st July 2002. The provisions of section 50C applies in case of transfer of land or building or both held as capital asset. The section provides that where full value of consideration for transfer of land or building or both is less than the stamp duty value of such land or building or both, Stamp Duty Value (SDV) of such asset shall be deemed as full value of consideration for the purposes of computation of capital gains (the section for real estate developers is separate under Sec 43CA). Example: Mr. A sold his land for Rs 45 lac for which the Stamp Duty Value (SDV) was Rs. 52 lacs. Thus, to compute the taxable value it shall be assumed that Rs. 52 lacs is the sale price and not the actual transaction price of Rs. 45 lacs. AMENDMENTS TO SEC 50C Finance Act 2016 Section 50C was amended to provide that where the date of agreement fixing the amount of consideration for the transfer of property and the date of registration are not the same, SDV as on the date of the agreement may be taken for the purposes of computing capital gain provided that amount of consideration or part thereof has been received by way of an account payee cheque or account payee draft or by use of ECS services on or before the date of agreement for transfer. Example: Mr. A entered into an agreement for sale of his land for Rs. 50 lacs when the SDV was Rs. 47 lacs. He also received a down payment account payee cheque for transaction amounting to Rs. 5 lacs. However, on the actual registry date the SDV was increased by the government to Rs. 55 lacs and the stamp duty was paid on that. Since there was an agreement and an initial receipt of consideration from an account payee cheque hence the SDV as on the down payment date would be applicable.
  3. 3. Page | 3 Finance Act 2018 Section 50C was further amended to provide that the provisions of the said section shall apply only where the SDV of the property exceeds 105% of the actual sale consideration. Example: - Transaction price is Rs. 200 but the SDV is Rs. 210 then there would NO implications under the said section since SDV doesn’t exceed 5% of transaction price. Finance Act 2020 Section 50C has further been amended to provide that the threshold for the application of this section shall be taken as 110% of sale consideration instead of 105% of sale consideration as stated in Finance Act 2018 above. SOLUTION FOR TRANSACTIONS BELOW SDV In the recent past in order to garner more taxes from stamp duty the government has been constantly increasing the circle rate of. Therefore, in case a person must do a transaction below the declared stamp duty value due to prevalent market conditions then he may do so and declare capital gains in their Income Tax return with the actual transaction price. There would be a high probability that the case would be selected for scrutiny and during the proceedings, the assessee may ask the assessing officer to refer to the valuation officer (of the Income Tax office) for determining the true market value since the stamp duty value does not reflect the actual market value. Further as a backup the assessee may also keep some proof of other transactions in the vicinity and around the same time to reflect the incorrect stamp duty and establish their transaction was at true arm’s length price. Also, it may be considered that a valuation be done by any other valuer (approved by the Income Tax office) suo moto by the assessee to be submitted during the scrutiny. Seth & Associates was established in 1975 and since then it has been providing unparalleled value addition to its client. We are a firm with diverse and rich exposure in various fields. All our partners are full time active working partners looking into specific sector domains such as Corporate Law, Direct Tax, Indirect Taxes, Raising Capital (Debt and Equity), Business Advisory solutions, Forensic and Information Technology audit and many other core sectors relevant to overall growth of the clients. The information herein contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endevour to provide accurate and timely information, there can be no gurantee that such information is very accurate and considers the latest amendment in laws which are very frequent. The above is purely for academic reading and general awareness of the law. No one should act on this information without appropriate professional guidance which requires a thorough examination of a particular situation. This content is owned by Seth & Associates, Chartered Accountants and is not be reproduced without our explicit permission. | New Delhi | Lucknow | Coimbatore