• Income tax on cost difference between agreed cost and actual valuation

We have purchased a flat from land owner at aggreed cost of Rs.45,00,000 and did notarized agreement in September 2017 and also paid 60% amount by online transaction at same time and now when we are about to do the actual registration the land owner is now demanding that the income tax on difference between the agreed cost and actual stamp duty cost which is Rs.63,00,000 has to be born by us. I want to know how legit his claim is.
Asked 11 days ago in Income Tax

As per income tax law seller has to pay the tax on higher of stamp duty or consideration received. In your case, your seller is indirectly reimbursing that tax amount from you. 

Moreover as per law, if the buyer gets the property lower than stamp duty valuation then the difference between stamp duty and actual consideration will be considered as income for buyer also. 

Vidya Jain
CA, Kolkata
897 Answers
25 Consultations

4.8 on 5.0

Sir,

Since you have the notarized agreement to sell at an agreed cost of 45,00,000 your seller cannot force you to pay 63,00,000 now since what he is talking about is also relevant for income tax purpose. But one thing to note here is that you should check your agreement thoroughly where any clause related to this in his  favour is written or not.

Under section 50C of Income Tax Act, 1956 the difference of stamp duty value and sale consideration(when it is less than stamp duty value) is taxable under income tax.

His claim is legally not valid and if he forces you can file a suit against him.

Hope you like the consultation .

Do rate if you like it.

Thanks & Regards

Shubham Bansal
CA, Amritsar
22 Answers

5.0 on 5.0

Hi

 

A property sale transaction at a transaction value less than the stamp duty value results in double taxation - in the hands of the buyer under section 56 and in the hands of the seller by virtue of section 50C. 

Who shall bear the taxes shall depend entirely upon the agreement between both the parties. It needs to be checked.

 

Further, there would be no tax on such difference amount if the stamp duty value of the property was 45 lacs at the time of agreement and 60 lacs is the stamp duty value according to current rates.

Lakshita Bhandari
CA, Mumbai
5245 Answers
351 Consultations

5.0 on 5.0

Dear Sir,

Hope you are doing well !!

The claim is not legal.

You are not liable to pay tax on difference amount subject to agreement between both the parties.

Section 50C provides that if the value stated in the instrument of transfer is less than the valuation adopted, assessed or assessable by the stamp duty authorities, the valuation as adopted, assessed or assessable by the stamp duty authorities will be considered for the purpose of computation of capital gains arising on transfer of land or building or both. For example if in the agreement for sale, the value of the flat is stated at Rs. 24 lacs but according to the stamp duty authorities the valuation of the flat is Rs. 34 lacs, then it will be considered that the flat has been sold for Rs. 34 lacs and capital gains will be computed on the basis of Rs. 34 lacs.

It is advisable to take a phone consultation for detailed discussion.

Payal Chhajed
CA, Mumbai
4896 Answers
91 Consultations

5.0 on 5.0

Hi

 

As per section 54C for calculation of capital gains in case of sale of land or flats, if the stamp duty value is more than the agreement value, then the former should be taken as the sale consideration and not agreement value

 

In case sale consideration received or claimed to be received by seller on sale of land or building or both is less than value adopted by stamp valuation authority, such value adopted by SVA would become actual sale consideration received or accruing to the seller

 

Therefore no need to pay tax on difference amount

Karishma Chhajer
CA, Jodhpur
2272 Answers
15 Consultations

5.0 on 5.0

How can income tax be so high. I would recommend you to book phone consultation for same.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement. You can even book phone consultation for further personal assistance.

Thank you.

Naman Maloo
CA, Jaipur
3668 Answers
40 Consultations

5.0 on 5.0

Stamp duty to be paid as per prevailing rate & DLC value but if you have notarized agreement of 2017 then can convience the ITD about diff of value  but have to explain the reason behind delay in registry

Nitin Jain
CA, Jaipur
207 Answers

4.7 on 5.0

- As per Income tax law, sale consideration should be at least equal to stamp duty value or higher. Variation of 10% is tolerable. If the sale deed is having value of Rs.45 lacs then Income tax will be payable on it by the seller and TDS will also be deducted on Rs.45 lacs only. Seller is reducing it risk if in future the sale value by the AO will be considered stamp duty value then he would be liable to pay tax on the difference.

Vivek Kumar Arora
CA, Delhi
3800 Answers
242 Consultations

5.0 on 5.0

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
  Ask a CA