Immovable property transaction

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Querist : Anonymous

Querist : Anonymous (Querist)

10 September 2013 Hi Everybody,
Pls help me in getting the answer for the question.
What are the stringent provisions in Income Tax Act while making Immovable property transactions that delay the tax evasions??????????

Awaiting for your quick reply!!!!!!!

Thanking You in Advance.

Querist : Anonymous

Querist : Anonymous (Querist)

10 September 2013 PLease reply me as fast as posible

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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28 July 2024 When it comes to immovable property transactions under the Income Tax Act in India, several provisions and regulations are designed to prevent tax evasion and ensure compliance. Here are some of the key stringent provisions:

### **1. **Valuation and Stamp Duty**

- **Stamp Duty and Registration Act:** Property transactions must be registered with the local sub-registrar, and stamp duty must be paid. The stamp duty value should be the higher of the sale consideration or the market value determined by the government. Under-valuation can lead to legal consequences and additional tax liabilities.

- **Section 50C of the Income Tax Act:** If the sale consideration of immovable property is less than the value adopted by the Stamp Duty Authorities, then the sale consideration is deemed to be the higher of the two for tax purposes. This prevents tax evasion by underreporting the sale value.

### **2. **Tax on Capital Gains**

- **Section 45 - Capital Gains Tax:** Profits from the sale of immovable property are treated as capital gains. If the property is held for more than 24 months, it is classified as a long-term capital asset and is subject to Long-Term Capital Gains (LTCG) tax. If held for less than 24 months, it is classified as a short-term capital asset and taxed accordingly.

- **Section 54 & 54F - Exemption on Capital Gains:** Exemptions are provided under these sections if the capital gains are reinvested in residential property. Specific conditions and timelines must be adhered to, or the exemptions may be denied.

### **3. **Disclosure Requirements**

- **Section 194-IA - TDS on Property Transactions:** When purchasing immovable property worth ₹50 lakhs or more, the buyer must deduct Tax Deducted at Source (TDS) at 1% of the sale consideration and deposit it with the government. Failure to comply can lead to penalties and legal issues.

- **Section 271H - Penalty for Non-Compliance:** If TDS is not deducted or deposited as required under Section 194-IA, a penalty under Section 271H may be levied.

### **4. **Income Disclosure and Verification**

- **Section 285BA - Reporting Requirements:** Transactions involving immovable properties must be reported to the tax authorities, particularly when they exceed specified thresholds. This includes reporting details of the property, the parties involved, and the transaction amount.

- **Section 56(2)(vii) - Income from Other Sources:** If a property is transferred for less than its market value, the difference between the fair market value and the consideration paid is treated as income under Section 56(2)(vii). This provision prevents under-reporting of property values.

### **5. **Anti-Avoidance Measures**

- **Section 50C - Fair Market Value:** As mentioned, if the sale consideration is lower than the Stamp Duty valuation, the higher of the two is deemed the sale consideration for tax purposes. This provision discourages under-reporting of property values.

- **Section 269SS & 269T - Cash Transactions:** To prevent money laundering and unaccounted cash transactions, these sections restrict the acceptance and repayment of loans or deposits in cash above specified limits.

### **6. **Regular Audits and Investigations**

- **Tax Audits and Investigations:** The tax authorities may conduct audits or investigations into property transactions to ensure compliance with tax laws. Discrepancies or under-reporting can lead to severe penalties and legal actions.

### **7. **Provisions for Tax Evasion and Penalties**

- **Section 271(1)(c) - Penalty for Concealment:** If a taxpayer is found guilty of concealing income or providing inaccurate information, penalties can be levied under this section.

- **Section 276C - Offense of Tax Evasion:** Deliberate tax evasion, including misreporting property values, can lead to criminal prosecution under this section.

### **Summary**

**Key Provisions to Prevent Tax Evasion in Immovable Property Transactions:**
1. **Valuation and Stamp Duty:** Adherence to stamp duty value (Section 50C).
2. **Capital Gains Tax:** Reporting and tax on capital gains (Sections 45, 54, and 54F).
3. **TDS Compliance:** Deducting and depositing TDS on property transactions (Section 194-IA).
4. **Disclosure Requirements:** Reporting large transactions (Section 285BA).
5. **Anti-Avoidance Measures:** Restrictions on cash transactions (Sections 269SS and 269T).
6. **Penalties and Legal Actions:** Penalties for non-compliance and tax evasion (Sections 271(1)(c) and 276C).

These stringent provisions are designed to ensure transparency, prevent tax evasion, and encourage compliance with the Income Tax Act. Always consult a tax professional or advisor for personalized guidance on property transactions and tax compliance.

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