Stam duty value is the value adopted by the Stamp Valuation Authority (SVA) to levy stamp duty on the registration of properties as guidance value to determine the undervaluation of land or buildings, if any, in the sale agreement.
Stamp duty valuation is Important for the seller under income tax laws. Under Section 50C, if the sale price of a property is lower than the Stamp Duty Value, the Stamp Duty Value is considered the actual sale price for tax purposes. This ensures the seller cannot undervalue the property to avoid paying tax.
However, if the seller claims that the stamp duty valuation is higher than the fair market value of the property, the income tax officer can ask its valuation officer to assess the value the property for capital gain purpose.
Guideline: If SDV > 110% of consideration then SDV will be considered as Full value of consideration.
Section 50C is applicable when the following conditions are fulfilled:
- There is a transfer of land or building
- The land or building is held as a Capital asset
- It can be depreciable or non-depreciable
- It can be held as a Long Term Capital Asset or Short Term Capital Asset
- The Stamp duty value is more than sale consideration
Let’s understand this SDV concept through an example
- Date of Transfer: 14-09-2024
- Sale Price = Rs. 40,00,000
- SDV = Rs. 45,00,000
- Indexed Cost = Rs.35,00,000
- Original Cost (before indexation) = Rs.25,00,000 (assumed for comparison)
- Other Income = Rs.1,40,000
- Basic Exemption = Rs.2,50,000 (under old tax regime)
Solution
Section applicable: Section 50C
Deemed Sale Value = Rs.45,00,000 (If SDV > 110%)
Computation LTCG
| Deemed Sale Value: Rs.45,00,000 |
| Less: Coast of acquisition: 25,00,000 |
| LTCG: 20,00,000 |
| Other Income: 1,40,000 |
| Unused exemption: (2,50,000—1,40,000) = Rs. 1,10,000 |
| Taxable LTCG: Rs.18,90,000 |
| Tax @ 12.5% = Rs. 2,36,250 Cess @ 4% = Rs. 9,450 |
| Total Tax = Rs. 2,45,700 |
Buyer’s Side Taxation on SDV Difference- Section 56(2)(x)
If the property is received for consideration and the difference between the stamp duty value and the consideration of such property exceeds 10% of the consideration and such a difference is more than Rs. 50,000, then the stamp duty value in excess of the consideration will be taxable as income in the hands of the buyer.
In this case
| Actual Sale Price = Rs.40,00,000 |
| SDV = Rs.45,00,000 |
| Difference = Rs.5,00,000 |
| Apply (10% rule) |
| 10% of 40,00,000 = Rs 4,00,000 |
| Since: |
| Difference = Rs.5,00,000 Which is more than Rs.4,00,000 |
| Entire difference Rs.5,00,000 becomes taxable in buyer’s hands |
Buyer’s Tax Computation
Income taxable u/s 56(2)(x) = Rs.5,00,000
This is taxed under normal slab rates.
If buyer falls in 30% slab:
Tax = 5,00,000 × 30% = Rs.1,50,000
Cess @ 4% = Rs.6,000
Total = Rs.1,56,000
Takeaway:
- When property is undervalued, seller is taxed under Section 50C.
- Buyer is taxed under Section 56(2)(x).
