Real Estate transaction is one of the main sources of generation of unauthorized income. After demonetization, the government will next focus on real estate transactions for identifying the unaccounted money. The government makes its efforts constantly to plug loopholes in such transactions by introducing various provisions periodically.
Scope of 'Immovable Property' included in the definition of 'Capital Asset' -
As per section 2(14) of Income Tax Act, 1961, unless the context otherwise requires, the term ‘capital asset’ means, 'property of any kind held by an assessee, whether or not connected with his business or profession. In relation to the definition of the capital asset, an immovable property primarily includes the physical form of the asset viz. land or building and land, any right attached to the immovable property, right to have floor space, possession & enjoyment, lease and tenancy, right to purchase and sell the property.
Section 2(47) - What is transfer?
As per section 2(47) of Income Tax Act, 1961, transfer in relation to a capital asset, includes -
- The sale, exchange or relinquishment of the asset; or
- The extinguishment of any right therein; or
- The compulsory acquisition thereof under any law; or
- Conversion of a capital asset into stock-in-trade; or
- The maturity or redemption of zero coupon bond; or
- Any transaction allowing of the possession of any immovable property to be taken or retained in part performance of a contract; or
- Any transaction which has the effect of transferring or enabling the enjoyment of, any immovable property.
Types of capital gain -
Profit on sale of the immovable property will be computed under the head capital gains. Tax payable on such capital gain is classified in following two categories -
- Short-term capital gain
- Long-term capital gain
As per section 2(42A), a short term capital asset means as asset (other than unlisted shares and unit of debt oriented mutual fund) held by an assessee for not more than 36 months and Section 2(29A) define that long term capital asset means an asset which is held by the assessee for more than 36 months.
Capital gain arise on transfer of short term capital asset is short term capital gain & capital gain arise on transfer of long term capital asset is long term capital gain.
Section 50C - Computation of Capital Gain in Real Estate Transaction -
Section 50C provides that if value stated in the instrument of transfer is less than the valuation adopted by the Stamp Valuation Authority, the valuation as adopted by the valuation authority will be considered as full value of the consideration for the purpose of computation of capital gain arise on the transfer of land or Building or Both.
Where the date of agreement fixing the amount of consideration and date of registration for transfer of capital asset are not same, then the stamp duty value on the date of agreement may be considered for computing full value of consideration, provided whole or part of consideration should be paid by A/c payee cheque/ bank draft or use of electronic clearing system through a bank account on or before the date of agreement.
Section 43CA - transfer of Land or Building held as stock-in-trade:
If a capital asset is transferred as stock-in-trade, then income arise on such transfer is treated as business income. As per section 43CA, where amount of consideration on transfer of land or building as stock-in-trade is less than the stamp duty value, then the stamp duty value shall be taken as full value of consideration for the purpose of computation of business income...
Further, where the date on agreement for fixing the value of consideration and date of registration for transfer are not same, stamp duty value on the date of agreement for transfer is taken as full value of consideration provided whole or part of consideration has been received by any mode other than cash on or before the date of agreement.
Section 56(2) - Immovable property received without consideration of inadequate consideration:
As per this section, if an individual or HUF receives any immovable property being a land or building without consideration and stamp duty value of such immovable property exceeds ₹50,000, then such stamp duty value is taxable amount. But if individual or HUF receives such property for inadequate consideration and difference between consideration and stamp duty value exceed ₹50,000, then the difference stamp duty value and stated consideration is a deemed income in the hands of purchaser and seller would be taxed on capital gain on basis of stamp duty value or sale price whichever is higher.
However, any property received without consideration or inadequate consideration by an HUF from its member is taxable.
Any Property received without consideration by the assessee from the following relative is not taxable -
- Spouse of individual;
- Brother or sister of the individual;
- Brother or sister of spouse of the individual;
- Brother or sister of either of the parents of the individual;
- Any lineal ascendant or descendant of the individual;
- Any lineal ascendant or descendant of spouse of the individual;
- Spouse of any person referred to above.
Full value of consideration in case of valuation by the valuation officer -
For the purpose of section 50, Section 43CA, and 56(2), where the recipient of the property claims before the income tax assessing officer that value so adopted or assessed by the stamp valuation authority exceeds the fair market value of the asset and appeal to appoint a valuation officer to ascertain the value of the property, then in such case if value ascertained by the valuation officer exceeds value so adopted or assessed by the stamp valuation authority, the value so adopted by stamp valuation authority shall be taken as full value of consideration. But if the value ascertained by the valuation officer is less than the stamp duty value, then value ascertained by the valuation officer shall be taken as full value of consideration.
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