Bought property below stamp duty value? ITAT ruling explains when tax may not apply

When a property is purchased at a price below its stamp duty value, it may trigger scrutiny under the Income Tax Act, particularly if the gap is significant.

A recent ruling by a Pune bench of the Income Tax Appellate Tribunal (ITAT) has highlighted the importance of the prescribed tolerance limit in such cases.

ITAT examines property purchase and valuation gap

In the case, ‘Aslam Sadule Khan, Raigad Vs. ITO WD-4, Panvel, the taxpayer purchased a 2,080.28 sq m parcel of land for ₹3.91 crore in July 2025. The stamp duty authorities valued the property at ₹6 crore.

The Assessing Officer (AO) initially treated the ₹2.09 crore difference as ‘taxable income’ under Section 56(2)(vii)(b) of the Income-Tax Act, 1961. A Departmental Valuation Officer (DVO) subsequently assessed the property’s fair market value at ₹4.031 crore. This reduced the difference to ₹12.10 lakh.

Note: The details above are indicative; for more details, refer to the complete order available on the official ITAT website.

ITAT highlighted that the difference between the purchase consideration and DVO valuation analysis was around 3%, thus bringing it well within the 10% tolerance limit referred to in the order.

What property buyers should understand

In this particular case, the tribunal relied on the tolerance provision under Section 50C and noted changes that increased the limit from 5% to 10%. It also discussed earlier coordinate-bench decisions that had considered the provision applicable retrospectively.

Consequently, the ITAT held that the addition was unsustainable and directed the AO to amend and modify the reassessment after verifying the taxpayer’s claim.

For buyers, the case highlights an important distinction: stamp duty value and fair market value are not always identical. A valuation dispute, therefore, may require examination of the property’s actual circumstances and, where applicable, a DVO’s valuation.

The ruling also does not mean every property purchased below the stamp duty value is automatically tax-free. Buyers should retain the sale deed, payment records, valuation documents and evidence supporting the transaction price.

The key takeaway is that if the stamp duty value is substantially higher than the agreed price, the taxpayer should understand the applicable tax laws and provisions, as well as valuation rules, before assuming that the entire difference will be treated as taxable income.

Disclaimer: This article is for informational purposes only. Tax treatment may vary based on the facts of each case. Buyers should consult a qualified tax professional and legal counsel, and refer to the applicable law and ITAT order before making any decision.