Deemed Income on Inadequate Consideration and Related Party Transactions

Understand Transactions with Related Parties and Deemed Income

Key rules to remember

Seller side: capital asset, land or building (section 78(1))

If consideration < stamp duty value, full value of consideration = stamp duty value

Applies to capital gains computation for land or building or both.

110% tolerance (section 78(1)(b) and section 53(2))

If stamp duty value ≤ 110% × consideration, full value of consideration = actual consideration

If the stamp duty value is even slightly above 110%, the whole stamp duty value is used, not just the excess.

Stamp duty value on date of agreement

Use stamp duty value on date of agreement if agreement date ≠ registration date AND part or full consideration was received on or before the agreement date in specified banking or online mode

Both conditions must be met. Cash advance does not qualify. Section 53(3) and (4) give the same rule for non-capital assets.

Money received without consideration (section 92(2)(m)(i))

If total received in the tax year from any person or persons > ₹50,000, whole sum is income

Not just the excess over ₹50,000. At exactly ₹50,000 nothing is taxed.

Immovable property without consideration (section 92(2)(m)(ii)(A))

If stamp duty value > ₹50,000, income = stamp duty value

Whole stamp duty value is taxed.

Immovable property for consideration (section 92(2)(m)(ii)(B))

Income = stamp duty value − consideration, if this excess > higher of ₹50,000 or 10% of consideration

If the excess is within the threshold, no income arises.

Other property without consideration (section 92(2)(m)(iii)(A))

If aggregate fair market value > ₹50,000, income = whole aggregate fair market value

Property means shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, bullion and virtual digital assets.

Other property for consideration (section 92(2)(m)(iii)(B))

If aggregate FMV − consideration > ₹50,000, income = FMV − consideration

Only the excess is taxed here.

Exempt receipts (section 92(3))

No charge under section 92(2)(m) on receipts from a relative, on marriage of the individual, under a will or inheritance, in contemplation of death, etc.

Learn the relative list in section 92(5)(g).

How to solve Transactions with Related Parties and Deemed Income questions

1. 1List each transaction: who transfers, who receives, the asset, the consideration and the dates.
2. 2Decide the side you are asked about: seller's capital gains or full value, or receiver's income under section 92(2)(m). Often both.
3. 3Check the asset type: immovable property (land or building), other specified property, or money.
4. 4Check exemptions under section 92(3): is the giver a relative, is it a marriage gift, a will, inheritance or a gift in contemplation of death? If yes, no deemed income for the receiver.
5. 5Apply the correct value: stamp duty value for immovable property, fair market value for other property. Check whether the date of agreement applies (agreement date differs from registration date and payment was in specified banking or online mode on or before agreement date).
6. 6Apply thresholds: 110% band for the seller; ₹50,000 and 10% tests for the receiver. Add all sums received in the year from all persons for money and for other property.
7. 7Compute the amount and name the head: income from other sources for the receiver; capital gains or business income for the seller.
8. 8State the conclusion in one line with the section number.

Quickest way: Three-test shortcut

Common mistakes in Transactions with Related Parties and Deemed Income

• Taxing only the excess over ₹50,000 when money is received without consideration.

  Students mix this rule with the threshold in other provisions.

  Fix: Remember: once the total received in the year exceeds ₹50,000, the whole sum is taxed. At exactly ₹50,000, nothing is taxed.

• Ignoring the relative exemption or using a wrong list of relatives.

  Students skim the facts and jump to the calculation.

  Fix: Check the giver first. Use the list in section 92(5)(g), which includes spouse, siblings, siblings of spouse, siblings of parents, lineal ascendants and descendants, and the spouses of those persons.

• Using the stamp duty value as the full value even when it is within 110% of the price.

  Students remember 'stamp duty value applies' but forget the tolerance band.

  Fix: Always compute 110% × consideration first. If the stamp duty value does not exceed it, use actual consideration.

• Applying the 110% band to the buyer's section 92(2)(m)(ii)(B) test.

  Both tests look like a tolerance for the stamp duty value.

  Fix: The buyer's test is different: the excess must be more than the higher of ₹50,000 or 10% of consideration. Then the entire excess is taxed.

• Using the stamp duty value on the registration date although the agreement date rule applies.

  Students overlook the payment mode condition or the date gap.

  Fix: Check both conditions: dates differ, and payment was received in specified banking or online mode on or before the agreement date. Otherwise use the value on the transfer date.

• Applying stamp duty value to shares or jewellery.

  Students treat all property alike.

  Fix: Stamp duty value is only for immovable property. Shares, jewellery, art, bullion and virtual digital assets use fair market value as prescribed.

Worked examples