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The term "stamp duty value" refers to the amount that the state or provisional government determines is appropriate for the payment of stamp duty on real estate.

If you intend to purchase a home or other immovable property for less than the "stamp duty value," you must consider the tax implications of such a transaction. In this blog, we will explain what the stamp duty value is and how it works. So let’s delve into it.

What is Stamp Duty Value (SDV)?

The ‘“Guidance Value” or “Circle Rate” or “Stamp Duty Value” of an immovable property is the value assessed by the authorities of the Department of Stamps and Registration of the State Government for the purpose of charging stamp duty at the time of registration of the property.

In a case where the difference in the amount between the ‘purchase price’ as recorded in the “Deed of Absolute Sale (Sale Deed)” and the ‘“Guidance Value” or “Circle Rate” or “Stamp Duty Value” is not within the permissible tolerance limit, the amount representing the difference between the Guidance Value (Stamp Duty Value) and the recorded purchase price may become taxable as income in the case of the buyer under the heading “Income from other sources” in view of the provisions of Section 56(2)(x) of the Income-tax Act.

How do you determine whether the purchase price is within the "tolerance limit"?

The excess of the ‘stamp duty value’ over the ‘purchase price’ recorded in the “Sale Deed” is included in total income of buyer in a case where the amount of such excess is greater than the higher of the following amounts, namely: -

(i) Rs. 50,000/-; and

(ii) 10% of purchase price

Let us discuss, three situations, which may emerge -

• The purchase price is greater than the stamp duty value: Sale ay, the purchase price is Rs.1,00,00,000/- and the stamp duty value is Rs. 90,00,000/-.
• The difference between the stamp duty value and the purchase price is more than 10 % of the purchase price: Say, the purchase price is Rs.1,00,00,000/- and the stamp duty value is Rs. 1,20,00,000/-. In the given situation, 10% of the purchase price is Rs.10,00,000/- (10% of Rs.1,00,00,000/-) and the difference between the stamp duty value and purchase price is Rs 20,00,000/-{Rs.1,20,00,000 (-) Rs.1,00,00,000}
• The difference between the stamp duty value and the purchase price is equal to or less than 10 % of the purchase price: Say, the purchase price is Rs.1,00,00,000/- and the stamp duty value is Rs.1,09,00,000/-. In the given situation, 10% of the purchase price is Rs.10,00,000/- (10% of Rs.1,00,00,000/-) and the difference between the stamp duty value and purchase price is Rs. 9,00,000/- {Rs.1,09,00,000 (-) Rs.1,00,00,000}.

In situation (A), the purchase price (Rs.1,00,00,000/-) as per the ‘Sale Deed’ is higher than the stamp duty value (Rs.90,00,000/-), there will be no tax implication.

In situation (B), as the difference of Rs. 20,00,000/- between the stamp duty value (Rs. 1,20,00,000/-) and the purchase price (Rs.1,00,00,000/-) is higher than Rs. 50,000 and also 10% of the consideration (Rs 10,00,000), the amount representing the difference between the ‘stamp duty value’ and ‘purchase price’ i.e., Rs.20,00,000/- becomes chargeable in the case of the buyer under the head “Income from other sources” irrespective of actual consideration paid.

In situation (C), the difference of Rs. 9,00,000/- between the stamp duty value (Rs.1,09,00,000/-) and the purchase price (Rs.1,00,00,000/-) is higher than Rs. 50,000 but not higher than 10% of the purchase price, i.e., Rs. 10,00,000/-; hence, even though the property is purchased for a consideration lower by Rs. 9,00,000/- as compared to the stamp duty value, there will be no tax implication.

What if ‘agreement for sale’ entered prior to registration of ‘Sale Deed’?

Where an “agreement for sale” is entered into between the buyer and seller, prior to the date of registration of an immovable property—

(i) In a case, where the purchase price recorded in the ‘sale deed’ is the same price, as agreed at the time of entering into the ‘agreement for sale’ and also the part or the whole of the purchase price, so agreed, is paid on before entering into the said agreement by any of the modes prescribed i.e. by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through other ECS mode prescribed, the ‘stamp duty value’ as assessable/applicable on the date of “agreement for sale” is taken into consideration for computation, the difference between the stamp duty value and the purchase price.

(ii) In a case where there is a difference between the purchase price as recorded in the ‘agreement for sale’ and the ‘sale deed’ and/ or where there is no difference between the purchase price as recorded in the ‘agreement for sale’ and the ‘sale deed’ but the payment of purchase consideration has been made, otherwise than specified modes, the ‘stamp duty value’ of the property as ‘on the date of registration’ is taken into consideration for computation of the difference between the stamp duty value and the purchase price.

How capital gain to be computed on subsequent sale of the property?

In a case where the difference, as discussed above, is charged to income-tax under Section 56(2)(x) of the act, the “stamp duty value,” which is taken into consideration for charging the income-tax, is considered the “cost of purchase” or the “cost of acquisition” of the said property for the computation of the capital gain at the time of subsequent sale of such property.

For example, in situation-B (discussed in the earlier paragraph), the purchase price (cost of acquisition) of the property as per the sale deed is Rs.1,00,00,000/-, however, as the amount of difference between the stamp duty value (Rs.1,20,00,000) and the purchase price (Rs.1,00,00,000/-) i.e., Rs. 20,00,000/- included in the total income of the buyer/purchaser, for the purpose of computing capital gain from the sale of such property, the “cost of acquisition" is to be taken at Rs. 1,20,00,000/- (stamp duty value) instead of the purchase price of Rs.1,00,00,000/-.

Circumstances in which “difference” is not to be charged to tax

There are certain circumstances in which the difference between the stamp duty value and the actual purchase is not charged to tax, such as the purchase of property from the spouse, brother or sister, brother or sister of the spouse, brother or sister of the mother or father, or any lineal ascendant or descendant of the individual or spouse of the persons referred to above. The provision is also not applicable in respect of purchase of property from a local authority, such as Panchayat, Municipal corporation, etc.

Conclusion

Think before buying a house for less than the stamp fee value; it may increase your tax burdens.

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Disclaimer:

The article is only for educational purposes and not be construed as tax advice. The relevant provisions of the Income-tax Act and relevant rules may be referred to for complete understanding.