Section 43CA: Special Provision for Full Value of Consideration in Transfer of Non-Capital Assets

Business and Profession, Tax Ready Reckoner

Section 43CA of the Income Tax Act, 1961 addresses the taxation of undervalued transactions involving business assets (non-capital assets) such as inventory, land, or building held as stock-in-trade.

Table of Contents

1. Key Features of Section 43CA

Objective: Prevents underreporting of sale consideration for non-capital assets(e.g., real estate held as stock-in-trade).
Applicability:
- Sellersengaged in real estate business (buildings/land held as inventory).
- Buyersmay also face implications under Section 56(2)(x) if undervaluation is detected.
Tax Treatment: If the actual sale price < stamp duty value (SDV), the higher value (SDV) is deemed as sale considerationfor tax purposes.

2. When Does Section 43CA Apply?

SCENARIO	TAX IMPACT
Property sold below stamp duty value	SDV is considered as sale value
Cash component not recorded	Full SDV taxable (even if cash is unaccounted)
Sale to relatives at lower price	SDV used unless proved as arms-length transaction

Example:

A builder sells a flat for ₹50 lakh, but the stamp duty value is ₹70 lakh.
Taxable sale value = ₹70 lakh(even if ₹50 lakh was received).

3. Exceptions & Adjustments

✔ 5% Margin Allowance: If sale price is ≥ 95% of SDV, no adjustment is made.

✔ Subsequent Resale Within 1 Year: If buyer resells the property within a year, the original seller’s SDV adjustment does not apply.

4. Compliance & Penalties

Disclosure in ITR: Must report both actual sale price and SDV.
Penalty Risk:
- Concealment (Section 271(1)(c)): 100–300% of tax evaded.
- Prosecutionin extreme cases.