Section 50C of the Income Tax Act deals with the calculation of capital gain on the sale of land or a building that is held as a capital asset. According to this section, the value of the sale amount should not be less than the stamp duty value that is assessed by the Stamp Valuation Authority. Section 50C will not apply in case land or building or both of them are held as stock.

What is meant by Capital Gain in Section 50C?

• The Income Tax law has divided incomes into five categories for taxation purposes. One of the categories amongst the five is 'capital gains'.
• Capital gains include income on the sale of any type of capital asset to the seller. A capital asset includes various assets including real estate. Hence, any gain or profit by the sale of land or building by the owner will be taxable as a capital gain.
• The sale consideration that is reduced by the cost of acquisition is also taxable as a capital gain.
• The idea of taxability of capital gain was introduced to control the flow of unaccounted black money in land or building sale transactions.

What is Included and Explained in Section 50C Concerning Taxability of Land and Buildings?

• Section 50C applies only to the land or buildings or both of them.
• It uses the value adopted by the Stamp Valuation Authority (SVA) concerning stamp duty on the registration of properties as guidance with regard to the undervaluation of the land or building in any sale agreement.
• If the sale consideration is received or claimed by the seller on the sale of land and building the value adopted by the stamp valuation authority becomes the actual sale consideration.
• Hence, the capital gain is calculated as per stamp valuation authority that is reduced by the cost or indexed cost of acquisition.
• No adjustment is made in case of variation between the stamp duty value and the sale consideration.
• The Finance Ministry has also increased the safe harbor rate that is the rate of variation between the actual sale consideration value and stamp value of property to 20% from 10%.

How to Calculate Capital gain as per Section 50C of Income Tax Act?

According to Section 50C, the capital gain should be calculated in the following ways:

How to Calculate Stamp Duty Value under Section 50C? 

The Stamp Value Authority assesses the stamp duty value. Sometimes the stamp duty on the date of agreement differs from the stamp duty value on the date of registration. There can be two possible cases in this scenario:

1. Consider stamp duty value from the date of the agreement.
2. The stamp duty value should be calculated on the date of registration

Conclusion

It should be noted that the market value provided by the valuation officer concerns the benefit of the taxpayer and also protects him from all sorts of hardships. The taxpayer does not get impacted negatively by the reference provided to the valuation officer. The most important thing to be considered is in the taxability of the sale of land or building is its due consideration.

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