Section 50 C and Stamp Duty should be align for fair market value
By Vimal Punmiya, FCA, LLB
Besides the current recession in the market, one of the prime reasons that have instigated the market for housing and realty sector to face a further downfall, is the modus operandi for calculating Stamp Duty Valuation, which has not been modified as per the prevailing market scenario, resulting in inflated costs of properties than its actual worth.
The Income Tax Act, 1961, Section 50C, further worsens the purchasers pleas and compounds the problem by laying emphasis on the ‘guideline value’ as adopted by the Stamp Duty Valuation Authorities. Section 50C which is a deeming provision, primarily states as follows:
- It says that the taxpayer (vendor) has to compute capital gains under Section 48 taking the full value of consideration as adopted by the stamp valuation authority for the purpose of registration.
- The vendor may either contest with the stamp valuation authority in regards to the value adopted for stamp duty purposes or if not contested before the stamp valuation authority, he is eligible to contest the valuation before the Assessing Officer (AO) at the time of assessment.
- If the tax payer has contested the value with the stamp valuation authority then he loses the right to contest the guideline value adoption with the AO.
- Where the tax payer does not contest with the stamp valuation authority or the AO, then the AO must adopt he value reckoned for the stamp duty purpose as apparent consideration for computing capital gains.
- Where the tax payer who did not contest before the stamp valuation authority, contests before the AO that the value adopted for stamp duty purpose exceeds the fair market value, the AO has to make reference to the valuation officer.
- If the value assesses by the valuation officer does not exceed the value adopted for stamp valuation then the valuation made by the valuation officer is to be adopted.
- If the valuation fixed by the valuation officer is more than the value adopted by the stamp valuation authority then the value adopted by the stamp valuation authority will be taken as deemed sale consideration.
Drawbacks of Section 50C / Stamp Duty Valuation
- Although the stamp duty department maintains a list of rateable value properties in Mumbai, the main concern is that in most of the cases the rates are much higher than the actual transacted rates for the property. However, instead of addressing the irregularity in the stamp duty rates, authorities have increased the stamp duty rates.
- Due to the high stamp duty, buyers have been quoting their property much below the actual transacted value. This is mainly because it enables buyers to save substantial amount on the stamp duty outgo (stamp duty is charged on the value of the property). This practice of the undervaluing the property is unethical and moreover it leads to accumulation of black money (unaccounted money) in the economy.
- Although the stamp duty rate may increase, the number of undervalued deals will also increase.
- The methods adopted by valuers is generally dependent on guideline value in some form or extent and hence is expected to have the impact of the bias.
- Financial hardships due to the exorbitant rates charged is much more than the transacted value.
In case of Mr. Thomas Ferreira
The assessee along with the co-owners was the owner of land at Valani (Malad), which has been sold. As per the agreement, the sale consideration received Rs.1,20,00,000/- which has been divided amongst the co-owners but it will be observed from the agreement that the stamp duty paid by the purchaser is on the market value which is Rs.25,44,64,000/-, thus placing a major financial hardship on the assessee.
In lieu of the aforesaid, the Ready Reckoner rates and the Income Tax provisions U/S 50C need to be liberalized.