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Karniti Part-18: Beware of Stamp duty value of Immovable property

CA Umesh Sharma 
on 06 January 2014

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Beware, Adhere to Stamp duty valuation of Immovable property under Income tax. 

Arjuna (fictional character): Krishna, It is astonishing that on 1st January Government instead of giving gift of New Year to the taxpayers, it increased Stamp Duty Value (i.e ready reckoner value) on the immovable property and that too in recession period of real estate market.  

Krishna (fictional character): Arjuna, for calculating stamp duty value of Immovable property like land, flat, plot, house, etc. Government tries to correlate it with market rates of Immovable property. Market rates of property changes and accordingly the stamp duty valuation. In spite of having recession increase in rates will create problem for many. As per Transfer of property Law, registration of all instruments of purchase or sale of immovable property is compulsory. Instrument means agreement to sale, etc. Due to this increment in stamp duty value, government receives additional revenue directly from stamp duty and indirectly from Income Tax and VAT department. Generally property transaction is carried out on the basis of stamp duty valuation with accounted money and income tax and VAT is paid on it. Further remaining transaction is carried out with unaccounted money. Due to these wrong dealings government constantly make changes the law to save revenue.

Arjuna: Krishna, many questions are arising in my mind. Please give me the solutions. If agreement to sale is registered before 31st December 2013 and Sale Deed is registered after 1st January 2014, then which value will be considered by Income Tax department?

Krishna: Listen Arjuna, as per Income Tax Act, the stamp duty value as on date of registration of agreement to sale will be considered, if full stamp duty is paid on it. Therefore many people rushed to registry before 31st December. If stamp duty is not paid completely earlier, then stamp duty may have to be paid on existing rates.  

Arjuna: Krishna, if one has sold plot or house, etc. i.e., immovable property for Rs. 25 Lakh and the stamp duty value of the same is Rs. 30 Lakh then what will happen under Income Tax Act?

Krishna: This is very important question Arjuna, Listen carefully; Stamp duty on Value of Rs. 30 Lakhs will have to be paid to State government and also this Stamp Duty valuation would be considered for levy of Income Tax. Please note that as per Income Tax Act, Tax will be levied on actual selling price or stamp duty value whichever is higher The seller will have to pay Income Tax on the stamp duty value i.e. Rs. 30 Lakh, even if he has actually received money of Rs. 25 Lakhs. Know, from the current financial year 2013-14, the purchaser will also have to pay Income Tax on Rs. 5 Lakh (30-25) i.e. difference of stamp duty value minus purchase price, this difference will be deemed to  be his notional income, being property purchased for inadequate consideration with respect to Stamp duty value. It is very strange method of levying deemed taxation i.e. if stamp duty value is more than the purchase price then purchaser and seller both will have to pay income tax on the difference. Please note that, transaction of sales and purchases from builders and developers are also covered and will be taxed accordingly. Further the above rule will not be applicable if, the said difference is below Rs. 50,000/-. This is only applicable to individuals and HUF assesse. This rule will not apply to the properties received from relatives, etc. by way of gift, will, etc.  Hence one should deal in properties after considering the section and rules of Income tax.      

Arjuna:  What will happen, if stamp duty value is Rs. 15 Lakh and sale is made at Rs. 20 Lakh?

Krishna: Keep in mind Arjuna, as per Income Tax Act, Tax will be levied on actual selling price or stamp duty value whichever is higher. Therefore in this case income tax will have to be paid on Rs. 20 Lakh. 

Arjuna: Oh God, why so? Does it mean immovable property deals should be carried out at stamp duty value or more?

Krishna: Arjuna, generally dealings of immovable property should be done at stamp duty value or more. If in any case, market value or actual sale price of any immovable property due to any particular reason is less than the stamp duty value then by making application to the stamp duty registrar it may be reduced or changed. Otherwise Income Tax Department may by appointing Valuear to work out market rate of the property. Further taxpayer may also go in appeal for getting concession under Income Tax Act. Practically value as per Market rates is many times higher than Stamp duty value.     

Arjuna: While purchasing flat, etc. builders and developers charge VAT. Is there any impact of stamp duty valuation on it?

Krishna: As per Maharashtra VAT Act, VAT will be charged @ 1% on higher of the Stamp Duty value or selling value. Therefore due to increase in stamp duty value, VAT Department will also get additional revenue.

Arjuna: How Service tax levied on immovable properties?

Krishna: Arjuna, taxpayers are fortunate that at least Service tax is not calculated on stamp duty value, it is done on actual sale price received. Builders will have to pay service tax on the receipts of sale consideration.

Arjuna: What will be the consequences in Local Body Tax?

Krishna: Arjuna, LBT is payable on purchase price or on rates per square meter and there are various conditions for it, which should be followed.

Arjuna: Krishna, in purchasing and selling immovable property i.e. shop, house, flat, etc. a huge amount of black money is used. So, Government tries in various ways to reduce the black money.

Krishna: Arjuna, don’t think of unaccounted money, even Government also cannot quantify black money in India or in foreign land. Which is misery, and black money is the biggest hurdle in financial development of nation.    

While transacting in immovable property all laws and regulations should be abided or otherwise common man may have to suffer for it. Due to “Land grabbers” selling of unauthorized land, plot, etc. and frauds have increased. Therefore transactions should be done by taking at most care. Change in one taxation law also affects the other tax laws. Due to rise in Stamp Duty value, the revenue of Income Tax, VAT Departments, etc. will also increase. In “KARNITI” changes in on law, may benefit other law. Therefore immovable property deals should be done as per stamp duty valuation or more, otherwise one has to suffer for it.

Dear Karniti Lovers, for more details refer to: Section 50C, 43CA and 56(2) of Income Tax Act. You’re Comments please.


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