Selling a tenant-occupied or encroached property for less than its stamp value

The general rule is that your gain is worked on what you actually received. For land and buildings, though, Section 50C overrides that: if the sale price is below the stamp-duty value the state uses for registration, the stamp-duty value is deemed to be your sale consideration, and the gain is computed on that higher figure. The law does this to counter under-declaration, and importantly it has no built-in exception for a price that is low for a genuine reason.

There is a tolerance band. If the stamp value does not exceed 110% of what you actually received, your real price is accepted and Section 50C does not bite. But a tenant on an old rent, an encroachment, or a title cloud can knock the achievable price far below the stamp value, well outside that 10% band, and then the deeming applies unless you take the specific step to rebut it.

The law gives you a defined remedy. Under Section 50C(2), if you claim the stamp value is higher than the property's real fair-market value, the assessing officer refers the valuation to the Departmental Valuation Officer, and if that officer values it lower than the stamp value, the lower figure is used for your gain. The Departmental Valuation Officer can take into account the very things the stamp value ignores, a sitting tenant, an encroachment, a defect in title, which is exactly what depressed your price.

Tribunals have repeatedly accepted that a tenancy on a low rent, or an encroachment, is an encumbrance that reduces value, and have allowed the real price to stand where the DVO route was used. The point to hold is that this is a rebuttal you raise, not an automatic carve-out in the statute. If you simply file at the low price without invoking the reference, the officer can apply the stamp value; if you raise it properly, the encumbrance can be reflected in a lower assessed value.

For an NRI seller the buyer deducts TDS under Section 195, and the same valuation question feeds into it. If the deduction and your computed gain are built on the discounted real price while the department later applies the stamp value, you get a mismatch and a demand. So the value has to be settled and documented, through the DVO reference where needed, and then carried consistently into the TDS working, the Form 13 application and the return.

A practising CA does this end to end from the Indian side: putting the encumbrance on record with the market evidence, invoking the Section 50C(2) reference, and reconciling the final value with the TDS so any excess deducted comes back and no avoidable demand is left open. An NRI does not need to attend in person for any of it.