Deemed gift under income tax

As per Section 56(2)(Vii) where an Individual receives any immovable property for a consideration which is less than the Stamp duty value by an amount exceeding Rs 50000, in that case the Stamp duty value as exceeding the Consideration is taxable as Income from Other sources.

( Suppose SDV is Rs 10 Lacs and Purchase price is Rs 8 Lacs, then 10-8=2 Lacs is Income from other sources)

This provision is only applicable in case Immovable property is purchased by Individual or HUF

Let me explain this by taking a simple eg.

Mr A ( buyer of prop )

Prop Purchased by A say for 80 lK ( lk as in lakhs )

Prop stamp duty value 100 lk

Then as per Section 56(2)(Vii) {AMENDMENT OF FA 2013} 20lk (100-80) will become income from other sources in the hand of A. so yes ITO is correct in saying so. 

BUT WAIT SOMETHING CAN BE DONE. IF SITUATION MATCHES . ( consult CA before doing this )

See this is amendment of FA 2013, Earlier if the situation had been the same then 20lk would not have been taxed and reduced from the cost of acquisition ie cost of prop would have been 80lk for A insted of 100lk.

if prop. is purchased in FY 13-14 (1.4.2013 - 31.3.2014) and if only you can show that actual possession of prop was taken by A in FY 12-13 (1.4.2012-31.3.2013) then you dnt have to bear such tax.  

Transfer is equivalent to possession and not actual transfer on papers.

If we need to show the diff. as income from other sources cliend  need to pay tax in crores of rupess also if he is in 30% slab.  This can be very burden on the client.  Of course as per Section 56(2)(Vii) we need to pay tax.  But is there any provision to reduce the tax.

Lavish chanadra your answer seems to be sound and good,  can you suggest me how to prove that the client have the possession in 2012-13 financial year itsef.

There is a planning to purchase Immovable property and also not fall in Section 56(2)(Vii).

Create a company and Purchase the property in the name of the company. As section 56(2)(Vii) is not applicable for a company the COA will be the Purchase price. And keep the share capital same as the value of property. In future when u want to sell it, u can do it by transfering the shares.  Consult a CA before taking any action.

In this case the property was already purchaed in Jan, 2014 itself.  In this situation explain me how to come out from the problem.

See i am estimating here that your are already up for regural assessment by ITO ie 143(3). So if you can proove him that the actual possession of the said prop. was taken in FY 12-13 (1.4.2012-31.3.2013) then you can save your tax.

What you can do is enter into a back date agreement with seller that there were some conditions ( eg part payment in kind or actual was made in 12-13) due to which prop possession was handed over in 12-13 and for IT purposes actuall possession date shall be treated as date of transfer not the date of actual registration.

see i don't think i can say it openly but yeah consult your partners/seniors it can be done as i have done this with one of my clients { In my clients case part payment was received in FY 12-13 and seller and buyer both agreed to sign such agreement that stated about possession in 12-13 and actuall transfer on papers was in 13-14 }. BUT i must tell you that we just took this risk.