July 8, 2023

How to Save Tax on Flat Agreement Price and Stamp Duty Difference: A Guide by ITAT


In a significant development for non-resident taxpayers, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has delivered a favorable verdict. 

The tribunal ruled that a non-resident taxpayer, who had invested in an upscale apartment in a posh suburb of Mumbai, cannot be subjected to taxation on the difference of Rs 55.9 lakh between the apartment’s agreement value and the stamp duty value at the time of registration. The tribunal categorically stated that this difference cannot be considered as “income from other sources.”

Typically, when an individual purchases a flat, the purchase price is determined and recorded in the agreement. Following an initial payment made during the booking stage, the buyer makes periodic payments over several months, with the registration of the property taking place at a later date. Understandably, the stamp duty value is usually higher on the date of registration. 

Hence, if you are looking for a luxury 3 BHK flat, you can make an informed decision based on the Income Tax Appellate Tribunal (ITAT) verdict.

Unfortunately, income tax officers have previously treated this disparity in value as taxable income, resulting in substantial tax demands and even penal interest for taxpayers.

Gautam Nayak, a tax partner at CNK & Associates, explained that although the ITAT order pertains to Section 56(2)(vii)(b), which has now been replaced by Section 56(2)(x), the principles established in the order are still applicable under the amended law due to the similarities in the provisions.

The provisos to Section 56(2)(vii)(b) of the Income Tax Act state that if the agreement’s date (which determines the consideration amount for the property transfer) and the registration date do not coincide, the stamp duty value at the agreement date may be considered if payments have been made through banking channels, excluding cash transactions.

In this particular case, the ITAT accepted the booking form as evidence of the agreement to purchase the property and the fixation of the purchase price. Furthermore, the tribunal acknowledged that the payments were made through banking channels and took note of the fact that the purchase consideration exceeded the prevailing stamp duty value.

The non-resident taxpayer involved in the case initially did not file an income tax return for the fiscal year 2015-16, likely because her income in India fell below the exemption limit. 

However, reassessment proceedings were initiated based on information regarding her property purchase. She filed a tax return for Rs 58,940 after receiving an Income Tax Department notice.

Despite her declaration, the income tax officer invoked Section 56(2)(vii)(b) to tax the Rs 55.9 lakh difference between the stamp duty value at registration (Rs 4.7 crore) and the agreement value (Rs 4.1 crore).

Key takeaways

  • The ITAT has ruled that the difference between the agreement value and the stamp duty value of a property cannot be taxed as income.
  • This ruling is a welcome relief for taxpayers who purchase properties in India.
  • The ruling clarifies that the difference between the agreement value and the stamp duty value is not taxable income, as long as the payments are made through banking channels.

Ultimately, the matter reached the ITAT, where the non-resident taxpayer argued that a substantial portion of the property’s price was paid via cheque at the time of booking, with subsequent payments made through banking channels. 

She also provided evidence demonstrating that the stamp duty value at the time of booking was lower than the agreement value. Consequently, the ITAT concluded that the addition made by the income tax officer using the provisions of Section 56(2)(vii)(b) could not be upheld and ruled in favor of the taxpayer.

Goodbrick Realty is a real estate developer based in Navi Mumbai, India. With a combined management and industry experience of almost 35+ years, Goodbrick has a strong track record of delivering high-quality projects. 

Goodbrick Realty is committed to transparency and trust, and they promise nothing less than excellence.

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