Section 50C (2) & Section 56(2)(x)

In many areas of Delhi and NCR the market value of properties is below the circle rate. In such case the Income Tax Act permits such transaction both for the buyer as well as the seller in terms of the following provisions of the Income Tax Act.

A.In the case of Seller:

Section 50C (2) provides as under:

Without prejudice to the provisions of sub-section (1),where-

a)The assessee claims before any Assessing Officer that the value adopted or assessed (or assessable) by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

b)the value so adopted or assessed (or assessable) by the stamp valuation authority under sub-section(1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court.

B. In the case of Buyer

3rd Proviso of section 56(2)(x) provides as under:

where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub section (2) of section 50 C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections;

Query: In computax software, if we select the option that the difference between stamp duty value and actual consideration is more than 10% (i.e. actual consideration being less than stamp duty value) then it automatically calculates capital gains tax taking stamp duty value as full value consideration. If the actual market value of the property is lower than the 10% of stamp duty value, how will it be disclosed in ITR Form-2? Kindly clarify.

Great question! Here's a detailed explanation on Section 50C(2) and Section 56(2)(x) regarding differences between stamp duty value and actual consideration, and how to handle it in ITR-2 (especially for cases where market value is below circle/stamp duty value):

Background

Section 50C(1):
If the stamp duty value (circle rate) is higher than the actual sale consideration, then for capital gains computation, the stamp duty value is considered as full value of consideration.
Section 50C(2):
The seller can dispute this stamp duty value by claiming that it exceeds the fair market value as on the date of transfer. But such a dispute can be raised only before the Assessing Officer and if the value has not been disputed in any appeal or court.
Section 56(2)(x) 3rd proviso:
If the buyer disputes the stamp duty value for the purpose of income tax (e.g., gift or other income provisions), the Assessing Officer may refer the property valuation to a Valuation Officer.

Your Query:

In Computax or other tax software, when you select "difference between stamp duty value and actual consideration > 10%", the software automatically takes stamp duty value as full consideration for capital gains. But if the actual market value is lower than even this 10% threshold, how should it be shown in ITR-2?

How to disclose in ITR-2:

If you accept the Stamp Duty Value as Full Value of Consideration:
- Disclose the stamp duty value (circle rate) as the sale consideration in Schedule CG (Capital Gains).
- The software computes capital gains accordingly.
If you dispute the stamp duty value (claim FMV is lower):
- You should file a dispute before the Assessing Officer as per Section 50C(2) (for seller) or get a valuation by Valuation Officer (for buyer).
- Till the dispute is resolved, report the stamp duty value in the ITR (as per Section 50C(1)).
After the dispute is resolved (and FMV accepted by AO):
- In the revised or subsequent ITR, disclose the fair market value accepted by the AO as the full value of consideration.

Important points:

In the current year’s ITR, you cannot show the actual lower market value if the dispute is not yet accepted by AO because the Act mandates using stamp duty value until otherwise ruled.
Computax's default approach is correct because it follows the law: take stamp duty value as full consideration unless dispute is accepted.

Practical tip:

In ITR-2, in Schedule CG (Capital Gains), enter the sale consideration as per stamp duty value.
In the "Remarks" or "Explanations" section, you may mention that the fair market value is under dispute as per Section 50C(2) and you will update the returns as per AO's directions.

Summary

Scenario	What to Report in ITR-2 (Schedule CG)	Remarks
No dispute / accept stamp duty value	Stamp duty value as sale consideration	Capital gains calculated accordingly
Dispute raised, AO yet to decide	Still report stamp duty value	Mention dispute in remarks
AO accepts FMV lower than stamp duty value	Report accepted FMV in revised return	Capital gains adjusted accordingly