Sellers tax liability on sale of house property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2014 There is a house property whose GMV is 40 lacs. But the house is sold in 15 lacs due old residential building.

My question is whether seller has to pay tax on 15 lacs or 40 lacs.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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14 September 2014 section 50C should apply and tax liability shall be computed on 40 lacs

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Querist : Anonymous

Querist : Anonymous (Querist)

02 October 2014 Thanks Nikhilji.

I want to elaborate my query.

The house was purchased by a partnership firm in 1992 for rs 250000. Later in 2007 the firm was dissolved and one partner takes the house. In 2010 the partner died and their legal heirs has sold the property for rs. 15 lacs due to old building and the house was also not in good condition due to closed for so many years.

Whether their is any way to save tax since the fair value of house is very low and its impossible to sold it in gmv value which are for current constructed buildings.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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23 July 2025 You're right to raise this query—it’s a classic case where **Section 50C** of the Income Tax Act, 1961 comes into play, but there *are ways to challenge it*.

Let’s break it down:

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### 🔍 The Issue

* **Sale Price (Actual Consideration)**: ₹15 lakhs
* **Stamp Duty (Guidance Market Value / GMV)**: ₹40 lakhs
* As per **Section 50C**, if the declared sale consideration is less than the stamp duty value, the latter (i.e. ₹40 lakhs) will be considered as the **full value of consideration** for calculating **capital gains** — *unless proven otherwise*.

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### 🛡️ Can This Be Challenged?

Yes, absolutely.

If the property is in **very poor condition**, and the sale was genuinely at ₹15 lakhs due to **age, disrepair, or structural damage**, then:

#### 📝 **Section 50C(2)** helps:

> If the assessee claims that the *stamp duty value* exceeds the **fair market value** (FMV) of the property, and the sale was made at lower value, the **Assessing Officer (AO)** may refer the property valuation to a **Departmental Valuation Officer (DVO)**.

So, **you can request for a DVO valuation** to establish that ₹15 lakhs is closer to the true FMV.

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### ✅ Steps You Can Take:

1. **Mention the issue in ITR** (Income Tax Return) and **disclose the actual sale value of ₹15 lakhs**.
2. **If you receive a notice under 143(2)**, request for **DVO reference under Section 50C(2)**.
3. Gather evidence:

* Photos showing poor condition of the house
* Expert valuer report (private) showing ₹15 lakhs valuation
* Affidavits or broker letters confirming poor condition / market reluctance

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### 🧾 Capital Gains Calculation (if DVO agrees)

Let’s say DVO values it at ₹18 lakhs → then **₹18 lakhs** will be taken as sale value instead of ₹40 lakhs.

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### 🧠 Additional Notes:

* Since the property came to heirs through inheritance, **cost to previous owner (i.e. 1992: ₹2.5 lakhs)** will be the base for capital gain.
* Apply **indexation benefit** from 1992 or 2007 depending on legal treatment (dissolution of firm to partner may affect this).
* If **capital gains arise**, consider using **Section 54** or **54EC** exemptions (by investing in new property or capital gain bonds).

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### 🛑 Final Tip

This is a **common genuine hardship** under Section 50C. Courts have held (e.g. in *CIT v. Chandni Bhuchar*) that **DVO’s report can override stamp duty value**.

Let me know if you want help with a **sample draft letter** to AO for DVO referral or capital gain calculation with indexation.

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