The process of purchasing property in India is intricate and involves multiple stages, from identifying the property to the signing and registration of a sale deed. It may appear that once one goes through the rigmarole of due diligence, obtaining permissions for the sale, documentation and registration, and updating of property records, the process of purchasing property is complete. However, real estate transactions sometimes come with risks which may present themselves at a later stage when completed transactions are subsequently scrutinized by governmental authorities.
This note sheds light on these risks, involving stamp duty implications and allegations of under-valuation, and the points to be considered when structuring sale deeds to mitigate the risk of such issues arising in the future.
STAMP DUTY AND VALUATION OF PROPERTIES
It is essential to ensure that a property is valued accurately when planning a sale transaction. To prevent any problems and subsequent scrutiny, it is recommended, especially for high-value sale transactions, to obtain a valuation report from a registered valuer prior to closing.
Stamp duty on sale deeds in the state of Maharashtra, for instance, is calculated on the consideration under the sale deed or the market value of the property, whichever is higher. For arriving at the market value of the property, the revenue authorities consider the Government’s guideline value (circle rate/ready reckoner rate). As a thumb rule, the consideration should be higher than the ready reckoner rate and stamp duty should be paid accordingly.
Another option is to submit the sale deed to the collector (“Collector”) for adjudication and determination of stamp duty payable. Under Section 31 of Indian Stamp Act, 1899 (“Stamp Act”), a party to an instrument (including a sale deed) can submit the sale deed to the Collector for adjudication. Upon the issue of a demand notice by the Collector following adjudication, the requisite stamp duty is to be paid on the sale deed.
UNDER-VALUATION OF PROPERTY AND TAX PROBES BY AUTHORITIES
It is important to note that under-valuing properties, whether intentional or unintentional, carries a potential risk of scrutiny by revenue and tax authorities, which may arise even after registration of the sale deed has been completed. In fact, the Stamp Act (as applicable to various states) provides a mechanism which empowers the Collector to take suo moto action or a registering officer to refer a sale deed to the Collector for valuation determination, if the registering officer is of the opinion that the market value of the property as set out in the document is inaccurate or the parties have mischaracterized the nature of the document in determining stamp duty. Upon the Collector conducting the enquiry, the party is required to pay the deficit stamp duty (if any) as determined by the Collector. The applicable stamp acts in the states of Maharashtra, Uttarakhand and Punjab also state that, in addition to the deficit stamp duty, the party has to pay a penalty as prescribed under the respective stamp acts. In this context, the courts have also highlighted the importance of classification and valuation of property transactions for stamp duty purposes. The Hon’ble Bombay High Court (“High Court”) in Suhas Damodar Sathe v. State of Maharashtra and Anr. (2025:BHC-AS:21275) while dismissing the writ petition observed that the developer’s comprehensive rights coupled with the owner’s receipt of the entire consideration and handover of actual possession could not be characterized merely as a “development agreement” falling outside the purview of conveyance. The High Court further observed that the authorities constituted under the Maharashtra Stamp Act had legitimately and correctly classified the document as a conveyance and upheld the earlier orders requiring payment of deficit stamp duty by the developer.
The Comptroller and Auditor General of India (“CAG”) also issues compliance audit reports, including reports on short levy of stamp duty and under-valuation of properties. Pursuant to the reports of the CAG, the revenue authorities may conduct investigations and recover the amounts from the concerned parties.
Further, cases of under-valuation of properties do not only trigger investigations for under payment of stamp duty; taxation authorities also look into such valuations to identify cases of under-valuation resulting in underreporting of capital gains. Section 50C of the Income Tax Act, 1961 (“IT Act”) was introduced to counter under-valuation of properties for tax purposes. Section 50C provides that if the consideration received by an assessee for transfer/sale of a property is less than the value assessed by the stamp valuation authority for the purpose of stamp duty, the value determined by the stamp valuation authority will be considered as the consideration for purposes of computation of tax under the IT Act.
Recently there has been an increase in tax probes initiated by tax authorities to identify cases of under-valuation of properties. It is important to note that the registered documents (including sale deeds) are publicly available and this may have multiple implications as far as identifying and investigating cases of under-valuation of properties by the authorities is concerned.
CONCLUSION
Given the increasing complexities and the efforts involved in a sale transaction, it is advisable that at the time of undertaking diligence, potential buyers should also look into the history of the property, previous transactions and any other factors that may expose the property/transaction to scrutiny in the future. Also, for exceptional cases – (i) where the valuation is low on account of reasons such as distressed sale, litigations, condition of property etc. or (ii) for availing exemptions, whereby the stamp duty payable is significantly lower, it becomes essential to have necessary approvals or supporting documents as may be prescribed to avoid future complications and/or penalties. While we have looked at the issue of under-valuation of transaction(s) from a stamp duty point of view, there will also be certain tax implications which will need to be ascertained at the time of structuring the sale transaction.
This insight has been authored by Avikshit Moral (Partner) and Preeti Dhar (Counsel). They can be reached on avikshit@snrlaw.in and pdhar@snrlaw.in, respectively, for any questions. A version of this insight was first published by ExecStream on July 14, 2025. This insight is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.© 2025 S&R Associates