What this guide covers
Suppose you are selling an old flat and the best offer you get is ₹80 lakh. But circle rate value of the flat, the value the government uses for stamp duty, is ₹95 lakh. You may think your tax is on ₹80 lakh, because that is what you actually received. Under Section 50C of the Income Tax Act, it may not be. The tax department can treat ₹95 lakh as your sale price and calculate your capital gains on that.
It mostly happens with old buildings, plots on the edge of a city and property that has been unsold for a long time. Below you will find how the rule works, when it does not apply, what it means for the buyer, and what you can do if circle rate value is too high.
What Section 50C says
When you sell land, a building or both, your capital gains are calculated on the higher of:
- the price you actually got, and
- stamp duty value, which is the value the stamp office uses to charge stamp duty. In most cases, this is circle rate for your zone multiplied by the area.
There is one relief. If stamp duty value is not more than 110% of your price, your actual price is accepted. So a small gap is ignored, and only a big one is taxed.
The 10% margin applies to sales from 1 April 2020. It was 5% before that, and for sales before 1 April 2018 there was no margin at all.
Section 50C is now Section 78
India’s new Income-tax Act, 2025 applies from 1 April 2026. The rule did not change, but the section numbers did. You will see both numbers on tax websites and in notices, so here they are side by side.
| What the rule covers | Old number (1961 Act) | New number (2025 Act) |
|---|---|---|
| Seller of land or building | Section 50C | Section 78 |
| Builder or dealer selling from stock | Section 43CA | Section 53 |
| Buyer who pays less than stamp duty value | Section 56(2)(x) | Section 92(2)(m)(ii) |
| TDS when buying property | Section 194-IA | Section 393 |
If you sold before 1 April 2026, the old section numbers apply to your sale.
Three examples
When the gap is small
You sell a flat for ₹80 lakh, and its stamp duty value is ₹87 lakh. ₹87 lakh is 108.75% of ₹80 lakh, which is within the 110% limit. So your capital gains are calculated on ₹80 lakh, the price you got.
Stamp duty is a different matter. The buyer still pays stamp duty on ₹87 lakh, because stamp duty is always charged on the higher value. The 110% relief is only for income tax.
When the gap is big
You sell a flat for ₹80 lakh, and its stamp duty value is ₹95 lakh, which is 118.75% of your price. Now the tax department treats ₹95 lakh as your sale price. That adds ₹15 lakh to your capital gains on paper, even though you never received it. If it is a long-term gain taxed at 12.5%, that is about ₹1,87,500 more tax, before cess.
When circle rate decides TDS
You sell a flat for ₹48 lakh, and its stamp duty value is ₹52 lakh. The gap is within 110%, so Section 50C does not apply. But TDS does. A buyer has to deduct 1% TDS when either the price or stamp duty value is ₹50 lakh or more, and the TDS is on the higher figure. So the buyer deducts ₹52,000 from your payment.
What it means for the buyer
The buyer has a matching rule. If stamp duty value is more than the price by more than ₹50,000 or 10% of the price, whichever is higher, the full gap is taxed as the buyer’s income.
Take the second example again. The buyer paid ₹80 lakh for a flat valued at ₹95 lakh. The gap is ₹15 lakh, and 10% of the price is ₹8 lakh. Since ₹15 lakh is more than ₹8 lakh, the whole ₹15 lakh is added to the buyer’s income for that year and taxed at their slab rate.
So a deal well below circle rate value can cost both sides extra tax. It is worth keeping this in mind before you agree on a price.
Signed the agreement earlier? Use that date’s value
Sometimes the agreement is signed in one year and the sale deed is registered a year or two later. If circle rates went up in between, stamp duty value at registration can be much higher than when you agreed on the price.
In such cases, stamp duty value on the date of the agreement can be used instead. There is one condition: the buyer must have paid at least part of the price on or before the agreement date by account payee cheque, account payee draft or bank transfer. A token paid in cash does not count. Keep the bank proof and a copy of the agreement safe.
Builders and dealers
If you are a builder or a property dealer and the flat or plot is part of your stock, the same idea applies to your business income under Section 43CA, now Section 53. The 110% limit is the same.
What to do if circle rate value is too high
Circle rates are set for a whole zone. They don’t know that your building is 40 years old, that your plot has no road access, or that the property has a legal dispute. If the value is unfair, you have two options.
- Get it corrected for stamp duty. You can ask the stamp authority to fix market value of the property. If it is lowered, the lower value is used for income tax too. Our guide on how to challenge a stamp duty valuation explains the process.
- Ask for a check during income tax assessment. The seller can ask the Assessing Officer to send the valuation to a Valuation Officer. If the Valuation Officer’s figure is lower than stamp duty value, the lower figure is used. Keep a report from a registered valuer, photos of the property and anything else that shows why its value is lower.
Before you sell
- Look up circle rate for your zone and multiply it by your area to get stamp duty value.
- Compare it with the price you are being offered. If the value is more than 110% of the price, expect higher capital gains.
- Tell the buyer early if the price is well below circle rate value, as they may be taxed too.
- Talk to a chartered accountant about exemptions, such as buying another house or investing in capital gains bonds. These can cut or wipe out the tax, even when Section 50C applies.
To check your own numbers, use the Section 50C calculator. Enter your price and stamp duty value, and it tells you whether you are within the 110% limit, what the buyer’s position is, and how much TDS applies.
Section 50C: common questions
What is Section 50C in simple words?
If you sell land or a building for less than its circle rate value, the income tax department can calculate your capital gains as if you sold it at circle rate value. This happens only when that value is more than 110% of your price.
Is Section 50C still applicable after the new Income-tax Act?
The rule is the same, only the section number has changed. For sales from 1 April 2026, it is Section 78 of the Income-tax Act, 2025. For sales before that, Section 50C of the 1961 Act applies.
Does Section 50C apply to inherited or gifted property?
Yes. It applies when you sell any land or building, including a home you live in, however you got it. It does not apply when you receive the property by inheritance or gift.
Does Section 50C apply to agricultural land?
Only if the land counts as a capital asset. Rural agricultural land, outside the distance limits set from a municipality, is not a capital asset, so there is no capital gains tax and no Section 50C on its sale.
Can the buyer claim circle rate value as cost later?
Yes. If the buyer was taxed on the gap between the price and circle rate value, that value is treated as the buyer's cost when they sell the property later.