Income Tax on purchase of immovable property

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This discussion clarifies income tax implications for a client purchasing land and a house for ₹1 crore, with a stamp duty value of ₹3 crore, intended as stock-in-trade. It confirms that Section 56(2)(x) of the Income Tax Act does not apply if the property is held as stock-in-trade. Tax implications, including capital gains, will primarily affect the seller. The purchaser will face tax only upon the eventual sale of the property as business income.

Dibyendu Majumder

Dibyendu Majumder (Querist)

31 March 2021 Dear Sirs,
My client is purchase a land with residential house property in consideration of 1 crore, whose stamp duty value is 3 crore in the F.Y. 2020-21 relating to the A.Y. 2021-22, My client is dealing purchase/sale of land/ house property & not want to sale the property in same F.Y. i.e. the property kept in stock in trade of my client Is any tax will attract u/s 43CA or 56(2) (x) of the I.T. act in same F.Y. to my clent party ? or any tax will attract under capital gain section of seller party? please clarify. Thanks

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

31 March 2021 Tax will attract u/s 43CA.
Capital gains tax applicable for seller of the property.

Dibyendu Majumder

Dibyendu Majumder (Querist)

01 April 2021 Please send me any notification about this purchasers taxability as i reading many articalrs that if purchaser who dealing with property and purchase property from a person who held propery ad capital asset need not requre to pay tax upto next sale. In my case saler is a individual and not dealing property.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 April 2021 Agree with you pay tax when the property is sold and consider it as profit from business.

Dibyendu Majumder

Dibyendu Majumder (Querist)

01 April 2021 So, please confirm me no tax will be lavid u/s 43 CA or 56(2)(x) in hand of the purchasers, who engaged in property dealing untill the property sold, correct?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 April 2021 Yes, you are right.......

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 April 2021 Section 56(2)(X) shall not apply if property is in nature of stock in trade, raw material and consumable stores of business in hands of recipients.

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Dibyendu Majumder

Dibyendu Majumder (Querist)

01 April 2021 Thank you so much sir

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

02 April 2021 You are welcome......

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