Section 50C – Stamp Duty Valuation- Taxability of Sale of Land and Building explained in detail

Selling of an immovable property often requires ample of knowledge related to taxation, stamp duty valuation or capital gains etc. In order to ensure a hassle free property sale or purchase transaction, one has to evaluate correct valuation for accurate calculation of taxes. 

Section 50C of income tax act has dealt with provisions relating to the above mentioned scenario.

What is Section 50C?
Section 50C deals with provisions relating to capital assets being Land or building or both. It does not apply to other capital assets. It provides guide for calculation of capital gains on the immovable property. According to Section 50C, value of sale consideration shall not be less than the stamp duty value as assessed by Stamp valuation authority (SVA) which is state government in general sense.

However, if the difference between such sale consideration of stamp duty value assessed by SVA is less than 10%, then such actual sale consideration can be taken for calculation of capital gains.

Section 50C will not be applicable if land or building or both are held as stock-in-trade. The Stamp Valuation Authority (SVA) determines the value of stamp duty, a tax levied on property registration transactions.

When is Section 50C applicable?
Section 50C will be applicable if following conditions are met:

• There is a transfer of either Land or Building or Both.
• Such immovable properties are not held as stock in trade.
• Assets are held as either long term or short term assets.
• Stamp duty valuation is obtained from SVA.

Calculation of Capital Gains as per Section 50C:

Particulars	Amount
Full Value of Consideration : Higher of (a)Actual Sale Consideration or (b)Stamp Duty Value as assessed by SVA	XXX
Less: Transfer Expenses	(XXX)
Net Sale Consideration	XXX
Less: Cost of Acquisition	(XXX)
Less: Cost of Improvement	(XXX)
Capital Gain as per Section 50C	XXX

If stamp duty value does not exceed 110% of sale consideration, then the actual sale consideration will be treated as the full value of consideration for capital gains.

Calculation Of Stamp Duty Value Under Section 50C:
The stamp duty value is the value assessed by the SVA. It is possible that stamp duty value on the date of agreement and on the date of registration are different. In such case following solutions are to be adopted:

• Consider stamp duty value on the date of agreement where

1. Full or part of the consideration was received on the date of the agreement, and
2. Payment made through account payee cheque or draft or electronic mode of transfer

• Otherwise consider stamp duty value on the date of registration

When selling price is lower than value adopted by SVA:
Section 50C provides safeguards to taxpayer against fluctuations in the property value only when the gap is significant between stages of sale of property. In such situations, value adopted by SVA is not considered for calculating value of tax. If the date of registration of the property and the actual date of sale are not the same, then the value adopted by SVA on the date of the agreement is considered as the sale consideration for calculating tax amount. However, this is applicable only if at least a part or thereof, of the sale consideration is received by an account payee cheque or bank draft or electronic mode of transfer before the date of the property transfer.

When value set by valuation officer is higher than the value SVA adopts?
Valuation officer is approached where taxpayers are facing hardships in determining the market value. Considering this, the value determined by the valuation officer or value adopted by SVA, whichever is lower, is considered as sales consideration for calculating capital gains.

Let us understand this with an example.

Sale consideration – Rs. 5,00,000

Value adopted by SVA – Rs. 10,00,000

Value determined by Valuation Officer – Rs. 12,00,000.

Sale consideration as per Section 50C will be Rs 10,00,000.

Actual sale consideration of Rs. 5,00,000 will not be considered as difference between SVA and sale consideration is more than 10%.

In the above situation, if Value determined by Valuation Officer is Rs.8,00,000 then Sale consideration as per Section 50C will be taken Rs 8,00,000.

In simple words, when value of valuation officer and SVA is considered, the amount beneficial for taxpayer will be considered for sale consideration under section 50C.

Conclusion:
Stamp duty valuation is very crucial while computing capital gains on sale of immovable properties. Section 50C provides guidance on which amount to be considered for computing sale consideration for capital gains calculations. In this regard, value determined valuation officer is also to be taken into consideration when such valuation officer is given reference.