Individual and HUF Buyers of Property - Beware!

Sunil ji ,

56(vii)(b)(ii) Wont be much of a help for tax collection . builders have become very cautious since 2004,

1.Since fair value would be deemed to be the cost of the property , can that be deemed to be my cost of acquisition too for purposes of capital gains later ?

2. If i had purchased a flat , in like say 1998 at a cost of 25 lakhs , and want to register that property now , stamp duty guys will adopt a value of like say 1.5 crores, the difference will be huge . Do i need to pay tax on difference? does this seem to be the intention of the legislature ?

3. If i purchase a property in march 2009 , and register it in nov 2009 , it will deemed to be the income of which year ?

4. If i purchase a property and obtain a fair value certificate from an independent valuer , does the intention of legislature fulfilled ?

5. Is it unconstitutional to introduce a provision for individual /HUF , and let other entities be exempt ?

6. what is the logic of 50000 difference , when the difference would purely depend on value of property , how can an adhoc difference be considered ?

Sir /All readers of this query , Can u pls try and answer these questions at yr comfort .

Litigations are bound to start on cost of acquisition for property. We will have to wait and watch. However, at the time of buying the property, your problems have just begun.Maybe this question  will be sorted out by the time you are ready to sell the property. Then the new DTC code will start having its own set of ammendments and by the year 2061 there will be a Brand New DTC to replace this one if we live to read it and comment on it.

Problem is that our economy is not a mature one. If you have 'high incidence of tax evasion' on one hand and a 'highly regulatory compliance driven framework' on the other, the classic question of which came first, the chicken or the egg will keep on coming up.

Sir i have just modified the above query , if u can answer that , it would be nice ,there are a lot of questions , planning to write to the board to issue some clarification , it will be a havoc in some cases , will create an ocean of litigations.

Also beware of one more thing. The affidavit required by the department as per recent notification of 30/9 is independent of the sale deed or gift deed of the property. The government requires affidavit to establish relationship and it cannot be done on the sale deed or gift deed. Both have to be on individually stamped stand alone documents. The affidavit of relationship is the condition that grants you exemption.

It is good that department is accepting the affidavit (declaration on solemn affirmation) from the seller or donor as applicable indicating the relationship. It can sometimes be a horrible task to submit a proof of relationship and is more time consuming and cumbesome than making an affidavit.

As per Income Tax, the date of handing over possession is the date of transfer of preperty. In your case presenting the documents late, usually in states like Maharashtra, they establish the value of the property per stamp duty reckoner on the basis of the date of transaction. In case of short stamping, you have to pay a penalty of 2% per month FROM DATE OF EXECUTION subject to a maximum of twice the stamp duty.

Sometime, in very high value transactions, lawyers fear that the deal may fizzle out after buying and typing agreement on a large value stamp. they always used to first execute the agreement on Rs.100 stamp paper, take both parties to the registrar's office, geth them both to sign and then pay the difference of stamp duty +2% interest on the duty. this way they felt they would never lose the 100% stamp duty in case of deal going bad before signing. Anyway this is out of context of your main query. It only answers the question of registering document late.

There will be litigations on this. There will definitely be litigation on valuation of movable properties like paintings, works of art and unlisted shares or securities. There was a spurt of property transactions upto 30th september for this reason alone and artificially it looked like the property market was going up along with shares and others and usually if everything else is up property is down. It was strange but someone in the real estate told me it was because of the new gift tax provisions. Now the value of property will again go down and there will be sales only if there is a desperate seller and a desparate buyer or a buyer having the capacity to litigate without property being registered in his name till litigation is over.

For cost of acquisition, there is another major problem. For Capital gains tax, the cost and date at which the donor purchased the house or property is reckoned for calculation of Capital Gains Tax in your hand. If a non relative person gifts you a property with a valid and duly stamped and registered gift deed, you would have paid tax on IFOS on this value what the adjudicating stamp officer determines. However, the provision of CG tax still remains where the value and date of purchase by the donor is considered by the Income Tax Department.

In your case, it is not a gift. You have purchased the property for what is deemed to be an inadequate consideration and you have been taxed for the difference. There is definitely going to be litigation on value to take for cost of acquisition. Since it is not a gift by a gift deed but indeed a consideration paid for sale, obviously the date of sale and possession is the date of transfer. The value or cost of acquisition if highly debatable. I wish more readers will come up with their views on this one.