By CA Surekha Ahuja, Chartered Accountant
Published: July 2025
Introduction
In Indian real estate transactions, it is customary for the buyer to pay stamp duty and registration charges. However, in certain transactions, the seller agrees to bear these costs — usually due to commercial convenience, negotiation leverage, or to expedite the deal.
This becomes tax-sensitive when:
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Stamp Duty Value (SDV) is higher than the actual consideration, and
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The seller pays stamp duty, which is legally the buyer’s obligation.
Such arrangements can trigger deemed income taxation under the Income-tax Act, 1961, particularly under Sections 50C, 56(2)(x), 28(iv), 48, and 49(4), unless planned and documented carefully.
Two Key Variables
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Whether the Sale Consideration is Less Than, Equal to, or Greater Than the Stamp Duty Value (SDV)
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Whether the Seller Pays Stamp Duty and Registration Costs Instead of the Buyer
These variables determine whether tax is triggered in the hands of the buyer, the seller, or both.
Section-Wise Tax Impact and Legal Interpretation
A. Section 50C – Taxation in Seller’s Hands
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If Sale Consideration < SDV, Section 50C applies, and SDV is deemed as full value of consideration for capital gains computation.
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The seller pays tax on deemed gain, not actual profit.
Relief:
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Section 50C(2) allows reference to a DVO (District Valuation Officer) if seller disputes SDV.
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If DVO value is lower than SDV, that value is used.
Key Judicial Precedent:
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Sunil Kumar Agarwal v. CIT (Calcutta High Court) — DVO reference is mandatory if FMV is contested.
B. Section 56(2)(x) – Tax in Buyer’s Hands
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If SDV > Consideration by more than 10% and ₹50,000, the difference is taxable as ‘income from other sources’ in buyer’s hands.
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Applies even if the seller pays stamp duty, because the benefit is presumed to accrue to the buyer.
Safe Harbor:
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If SDV is within 110% of the consideration, no tax under Section 56(2)(x).
C. Section 48 – Deduction of Transfer Expenses
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Seller cannot claim deduction for stamp duty paid on buyer’s behalf under Section 48.
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Not ‘wholly and exclusively’ in connection with the transfer.
Judicial Precedent:
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ITO v. V.S. Vasudevan — Stamp duty paid by seller is not allowable as a deduction in computing capital gains.
D. Section 49(4) – Cost Base for Buyer if Taxed
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If buyer is taxed under Section 56(2)(x), then SDV becomes buyer’s cost of acquisition for capital gains purposes on resale.
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Prevents double taxation on resale.
E. Section 28(iv) – Business Income Risk for Buyer
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If buyer is a business entity (e.g., real estate developer), stamp duty paid by seller may be treated as a benefit or perquisite taxable as business income under Section 28(iv).
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Risk exists even if consideration and SDV are equal.
Mitigation:
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Show commercial justification.
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Include explicit contractual clause explaining rationale.
Tax Risk Matrix – All Scenarios
| Scenario | Section 50C | Section 56(2)(x) | Section 28(iv) | Buyer’s Cost Base | Seller’s Deduction | Risk Level |
|---|---|---|---|---|---|---|
| SDV > Price by >10%, Seller pays | ✅ Applicable | ✅ Applicable | ✅ High if buyer is business | SDV if taxed | ❌ Not allowed | 🔴 High |
| SDV = Price, Seller pays | ❌ Not applicable | ❌ Not applicable | ⚠️ May apply | Actual price | ❌ Not allowed | 🟠 Moderate |
| SDV < Price, Seller pays | ❌ Not applicable | ❌ Not applicable | ⚠️ May apply | Actual price | ❌ Not allowed | 🟢 Low |
| SDV > Price but within 10%, Seller pays | ❌ Safe Harbor | ❌ Safe Harbor | ⚠️ May apply | Actual price | ❌ Not allowed | 🟡 Low |
Internal Audit Checklist for Property Transactions
A. Documentation Controls
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Sale agreement must explicitly state that seller is paying stamp duty for commercial reasons.
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Buyer must provide a declaration that no benefit is received.
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Ensure no side agreements or reimbursements exist.
B. Valuation Controls
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Obtain registered valuer report.
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Compare actual price vs SDV.
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Invoke DVO referral where SDV is higher by over 10%.
C. Tax Filing Controls
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Seller computes capital gains on SDV if Section 50C applies.
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Buyer discloses income under Section 56(2)(x), if applicable.
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Buyer updates cost base under Section 49(4) if taxed.
D. Business Buyer Controls
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Avoid capitalizing seller-paid stamp duty in buyer’s books.
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Evaluate Section 28(iv) if buyer is in real estate business.
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Disclose appropriately in Form 3CD and tax audit report.
Strategic Tax Planning Measures
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Keep transaction price within 90–100% of SDV to stay within safe harbor.
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Get DVO valuation if SDV is inflated.
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Include a clause stating “seller is bearing stamp duty for logistical/commercial convenience”.
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Preserve email trail, negotiation records, and valuation reports.
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Avoid any indirect reimbursement — can trigger Section 69C or unexplained expenditure.
Suggested Agreement Clause
The Seller has agreed to bear the stamp duty and registration charges solely for commercial and logistical reasons. The Buyer affirms that no direct or indirect benefit has been received, and that the consideration reflects the negotiated fair market value.
Golden Rules
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Stamp duty paid by seller is not deductible for seller and not always tax-free for buyer.
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If SDV is more than consideration by over 10%, tax can apply to both parties.
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Use of DVO reference, safe harbor rule, and documentation are key to tax efficiency.
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Business buyers have additional risk under Section 28(iv).
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Internal audit must validate all aspects: agreement, valuation, disclosures, accounting treatment.
Final Takeaway
When SDV is higher or lower, and seller bears stamp duty, the tax treatment becomes complex. A poorly structured transaction can lead to:
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Double taxation — once under Section 50C, again under Section 56(2)(x)
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Disallowance of legitimate deductions
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Litigation exposure and audit qualification
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Incorrect cost base for future resale
But with correct valuation, legal drafting, declaration, and DVO process, such transactions can be compliant and tax-optimized.
