Income Tax Query 13: Purchase of Immovable Property at Less Than Value Adopted by Stamp Duty Authority

Scenario
M/s ABC Private Limited is a Domestic Company (which has opted for the concessional tax regime or New Tax Regime under Section 115BAA, having an effective tax rate of 25.17%). The company purchases an immovable property from a seller under the following commercial terms:

1. Stamp Duty Circle Rate: ₹70 Lakhs
2. Actual Transaction Price: ₹25 Lakhs

For the purpose of this query, date of agreement and date of registration is the same.

Query

In the given transaction, where the property is acquired significantly below the guideline value:

(1) Income Tax Implications for the Buyer

(2) TDS Applicability for the Transaction

(3) Income Tax Implications for the Seller

Response

(1) Implications for the Buyer

The difference in Stamp Duty Circle Rate or Guidance Value adopted by Stamp Duty Authority is deemed to be Income from Other Sources u/s 56(2)(x) of the Income Tax Act, 1961 if the variance exceeds 10% of Actual Purchase Price or ₹50,000/- which ever is higher.

Further, the Cost of Acquisition u/s 49(4) of the Income tax Act, 1961 is deemed to be ₹ 70 Lakhs.

1. Stamp Duty Circle Rate / Guidance Value : 70 Lakhs
2. ⁠Actual Transaction Price : 25 Lakhs
3. ⁠Deemed Income 56(2)(x) : 45 Lakhs
4. ⁠Cost of Acquisition u/s 49(4) : 70 Lakhs
5. ⁠Book Value for Accounting purpose / reported in Financial Statements as per AS / Ind-AS : 25 Lakhs

(2) TDS Applicability for the Transaction

TDS is applicable on the transaction because the Stamp Duty Guidance Value exceeds ₹50 Lakhs – threshold limit even if the actual transaction value is less than the threshold limit.

The Buyer must deduct TDS u/s 194IA at 1% on ₹70 Lakhs (higher of transaction price or circle rate), amounting to ₹70,000 and file Statement of TDS in Form 26QB.

(3) Implications for the Seller

The Seller’s Deemed Sale Value for the purpose of computation of Capital Gains is taken as ₹70 Lakhs u/s 50C(1) of the Income tax Act, 1961.

Reference:

1. Section 56(2)(x)(b) of the Income Tax Act, 1961:
   Where any person receives, in any previous year, from any person or persons any immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees and the stamp duty value of such property exceeds one hundred and ten per cent of the consideration, the stamp duty value of such property as exceeds such consideration shall be charged to tax under the head “Income from other sources”.
2. Section 49(4) of the Income Tax Act, 1961:
   Where the capital asset, being a property, the value of which has been subject to income-tax under clause (x) of sub-section (2) of section 56, the cost of acquisition of such asset shall be deemed to be the value which has been taken into account for the purposes of the said clause (x).
3. Section 194-IA(1) of the Income Tax Act, 1961:
   Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property, shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum or the stamp duty value of such property, whichever is higher, as income-tax thereon.
4. Section 50C(1) of the Income Tax Act, 1961:
   Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.