INCOME TAX QUESTIONS & ANSWERS- PROVISIONS OF SECTION 50C

PROBLEM:- Mr. X intends to sell a piece of urban residential plot ( belt for 48 months) to Mr. Y for a consideration of Rs. 2.00 Crores, in February, 2021. This assets has been held as an investment by Mr. X. Both parties are willing to enter into a written agreement in this regard. Initial payment will be Rs. 40.0 Lakhs. The buyer is given 12 months time for completing the sale, at that point of time, balance amount has to be paid.
Following two options are considered;

Option 1- Payment of Rs. 10.00 Lakhs by account payee cheque on the date of this agreement and Rs. 30.00 Lakhs in cash on the same date.

Option 2- Payment of Rs. 10.00 Lakhs by account payee cheque on the date of this agreement and Rs. 30.00 Lakhs in ECS in the bank within a period of 7 days .

An increase of 30% in stamp duty is anticipated with effect from April 1 ,2021. The parties seek advice of professionals to plan suitably for reduction of Capital Gain Tax .

LET’S FIRST WE CONSIDER PROVISIONS OF SECTION 50 C OF THE INCOME TAX ACT, 1961.

Section 50C of income tax act 1961 introduced vide Finance Act. 2002 w.e.f. 01.04.2003, which prescribes similar provisions in the case of transfer of land or building or both held in the nature of ‘Capital Assets’. ( from assessment year 2003-2004).

SECTION 50C(1)- provides that 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 of adopted or assessed or assessable by any authority of State Government for the purpose of payment of Stamp duty in respect of such transfer, the value of adopted or assessed or assessable shall be deemed to be full value of the consideration received or accruing as a result of such transfer. Therefore, if the value adopted or assessed or assessable for stamp duty purposes is more than the consideration returned by the assessee then the value adopted or assessed or assessable for stamp duty purposes will be deemed as full value of consideration.

The Finance Act, 2018 has provided relief to assesses in the sense that where the value adopted or assessed or assessable by the authority for the purposes of payment of stamp duty does not exceed one hundred and five per cent (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 computing profit and gains from transfer of such asset, be deemed to be the full value of the consideration. The amendment is effective from the assessment year 2019-20.

The Finance At,2020 has amended provisions of Section 50C and from Assessement year the allowable gap has been increased from 5% to 10%. It means that where value adopted or assessed or assessable by the authority for the purposes of payment of stamp duty does not exceed one hundred and ten per cent (110%) 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 computing profit and gains from transfer of such asset, be deemed to be the full value of the consideration.

ANSWER:- from above discussion on provisions of Section 50C ( as amended) we know that if Stamp Duty Value of Capital Assets transferred will exceed 110% of Sale Consideration then Stamp Duty Value will be considered as Full Value of Consideration for calculating Capital Gain in hands of transferor.

Where date of an agreement fixing the value of consideration and date of registration are not the same, the Stamp Duty Value may be taken as on the date of Agreement for transfer( and not as on the date of registration) for such transfer. However this exception shall only apply to those cases where amount of consideration( or part thereof) has been received by way of a account payee cheque/draft or by use of electronic clearing system through a bank account before the date of agreement.

In the given problem, the Stamp Duty value in the month of February,2021 in which agreement happen( at the time of agreement) can be taken as full value of consideration only if consideration ( or a part thereof) is received by an account payee cheque/raft or through ECS.

In above given problem a part of consideration has been received through banking challen.

For calculating Capital Gain Tax we have to consider Full Value of consideration at the time of Agreement that is Rs. 2.00 Crores or Stamp Duty Value in February,2021 whichever is more ( on the assumption that Stamp Duty Value is more than 110% of the sale consideration). The Stamp Duty Value in February,2021 ( i.e. at the time of agreement not at the time of registration) will be considered ,whether mode of payment is as per Option 1 or Option 2 given above.

OPTION1- if this has been adopted ,it will be violation of provisions of section 269SS( i.e. receipt of advance of more than Rs. 20,000 or more in cash) and Mr. X, the transferor has to penalty under Section 271D( which is equal to 100% of the amount of cash received.

OPTION2- it is advisable to adopt this option to avoid violation of provisions of Section 269SS and penalty under Section 271D of the Income tax Act, 1961.

DISCLAIMER; above write up is an attempt to share information and knowledge with our readers. The view expressed here are the personal views of the author and same should not be considered as a professional advice. It is advisable to consult with your tax consultant before acting on any part of this article.

Posted on: February 11th, 2023