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Property Transactions and new tax effect

CA Prashant Gupta 
on 28 May 2013

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Property transactions

Budget 2013 amended some sections related to property transactions. These amendments affect a person in many ways. Some are described below:

When there is difference between property value and stamp duty value exceeds 50,000/-:

When a property is sold then buyer and seller first make an agreement and then let it registered. In every state there is government rates of property are prescribed by government that is called circle rates, collectrate rates or DLC rates. In income tax it is called Property value for stamp duty.

From 1-4-2013 if there is difference between sale value and stamp duty value and it exceeds 50,000/- then this difference will be added in buyer’s income.

For example: Mr. X purchased a house from Mr. Y of Rs. 75,00,000 circle rate of this property was 80,00,000/-.  Now this difference of 5,00,000/- is more than 50,000/-. So this 5 lac will be added in Mr. X’s income.

This rule is made because it is assumed that Mr X got a 80 lac property in 75 lac. So he got 5 lac Rs. as gift. So it will be taxable in his hands.

Let’s assume in above case, Mr. X purchased that property in 79,60,000/- then the difference will be 40,000/-. Now this is below 50,000/- So it will not be taxable in hand of Mr. X

Let’s assume in above case, Mr. X purchased that property in 82,00,000/- then because it is sold above circle rate so no addition of income.

This section is applicable only on Individual and HUF.

It is to be noted that as per 50C for valuation of capital gain, consideration is taken as circle rate of sale value whichever is more. So seller is already in this value calculation according to circle rate. Now by 56(2)(VII)(b) buyer is also come in this calculation.

Difference in date of agreement and date of registry:

As it is mentioned above when asset is sold then first an agreement is made and then it is registered. So mostly there is difference between date of agreement and date of registry. Sometime this difference is longer than 3 months also. If in between circle rate of that property is changed then always there was a dispute that on which circle rate all calculations will be made. Now it is clear that if there is change in circle rate then the rate on agreement date will be final. ONE CONDITION is there, for this sale consideration or part must be paid by any mode other than cash.

For example: Mr. Ram purchased a property from Mr. Rahim in 25 lac. Circle rate was 25 lac that time. The agreement was made in Jan-2013. A cheque of Rs. 2 lac was paid that date. Circle rate was changed in April-13 and now the circle rate of that property is 27 lac. So difference is 2 lac, which is more than 50 thousand.  Registry was made in May-2013. But now the circle rate will be considered as 25 lac because on agreement date it was 25 lac.

Now in above example it is assumed that Mr. Ram paid 2 lac in cash in Jan-13. So now when registry was made in May-13 circle rate will be 27 lac. So as per 56(2)(VII)(b) 2 lac will be added in income of Mr. Ram.

If there is no registry:

There are many property transactions in market which are not registered then by 56(2)(b) it is authority of income tax to consider that transaction fulfilled on agreement date. So they can take circle value on agreement date and sale price whichever is more as consideration. Rest calculation will be made according to above.

If buyer think circle rate is more than actual value:

If a buyer thinks that circle rate is higher than actual rate then he can give an application to AO. After this application AO can refer this case to valuation cell. If valuation cell calculate value which is lower than circle rate then this value will be consideration as consideration but it must be high then actual sale value.

If this valuation cell value is more than circle rate then circle rate value will be final.


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