ENTERED INTO AN AGREEMENT TO SALE IN 2005 & WILL BE EXECUTING SALE DEED NOW: INCOME TAX IMPLICATIONS

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ENTERED INTO AN AGREEMENT TO SALE IN 2005 & WILL BE EXECUTING SALE DEED NOW: INCOME TAX IMPLICATIONS

Query 1]

I am having an urban Agro Land in my HUF capacity which I want to sell. To save LTCG, can I invest the LTCG in 3 years LTCG Fixed Deposit Account for construction of another new Residential House in name of my HUF?  I am already having one residential house in my HUF.

My queries are:

  1. By doing so, can I save LTCG on sale of my HUF Agro Land? and
  2. If for any reason, I could not construct the new residential house within prescribed 3 years, can I get more time to construct? If not, what will be the consequences? Please advise. [dalmia007@gmail.com]

Opinion:

  1. Long term capital gain (LTCG) arising in the hands of HUF on transfer of urban agricultural land could be claimed as exempt:
    a] U/s 54EC by investing the amount of LTCG for purchase of REC/NHAI Bonds
    b] U/s 54F by investing the amount of net sale consideration for purchase/ construction of house property. The exemption would be admissible only if the transferor does not own more than one house property, other than the new asset, on the date of transfer of the original asset.
  2.  Consequence where the amount deposited in the capital gain deposit account scheme is not utilized for the purchase or the construction of a residential house property within the specified period:
    In this case, the amount not so utilized shall be charged as capital gain of the year in which the period of 3 years from the date of transfer expires and it will be taxable as LTCG of that year. Assessee, with the approval from the Assessing Officer after making an application in Form G, shall be eligible to withdraw the amount from the Capital Gain Deposit Account scheme.


Query 2]

I entered into an agreement on Rs. 100/- Stamp paper to sell one room tenement for Rs. 2,10,000/- in the year 2005. The building was under construction at that time.

Initially the purchaser paid Rs. 1,00,000/- in advance for construction to me and after completion of construction work, I handed over the possession of the same to the purchaser. The balance amount was to be paid in installments. There is no registered document. At the time of entering into agreement, the price was reasonable. Now the price is four times the agreed price and is valued around Rs. 9,00,000/-. The purchaser now insisted that the sale deed to be executed. The purchaser said he/she is ready for impounding the unregistered document. Now, the price of the room is Rs. 9,00,000/- as per the market rate and as per the stamp duty authority.

The purchaser has said that as he is impounding the unregistered document, the seller is not liable to pay any Capital Gain as I will be receiving only Rs. 2,10,000/- as per the original unregistered agreement only. I just wanted to know whether the purchaser is right as per the above stated points. He further said that he will bear the expenses of registry as per the market rates. I will be glad if you could please guide me in the above matter. [aaxxxxxx@gmail.com]

Opinion:

  1. The capital gain tax is payable in the year in which transfer took place. In normal course & in general, possession is considered as amounting to transfer.
    In your case, it appears that you have transferred the property earlier but you are executing formal registered document now. It further appears that you will be paying the tax on the transactions at the time of executing the sale deed now. The possibility of levy of interest, penalty, fine etc could not be ruled out in such case as the transaction would have been taxed in the year in which the possession was handed over.
  2. In your case, you would either be offering the income for taxation under the head “Income from Capital Gain” or under the head “Income from Business”.
  3. If Capital Gain:
    The capital gain is required be computed by taking the higher of
    i) actual sale consideration or
    ii) Stamp duty valuation as adopted by the stamp duty authorities for recording the transfer.
    If the registrar impounds the document and agree for lesser consideration for levy of stamp duty then the capital gain can be worked out on the basis of such lesser valuation & not Rs. 9 Lacs which is the present Government valuation for levy of stamp duty.
  4. If Business Profit:
    a] As a result of new section 43CA inserted in the Income Tax Act-1961, even the immoveable property forming part of stock in trade would be taxable on the basis of Stamp Duty Valuation or Actual sale price, whichever is higher.
    b] If the registrar impounds the document and agree for lesser consideration for levy of stamp duty then the profit could be worked out on the basis of such lesser valuation.
    c] Even if the impounding is not done, it is provided that where the date of an agreement fixing the value of consideration for the transfer of the assets and the date of registration of the transfer of the assets are not same, the stamp duty valuation may be taken as on the DATE OF THE AGREEMENT for transfer and not as on the date of registration for such transfer. However, this exception is applicable only where amount of consideration or part thereof for the transfer has been received by any mode other than cash on or before the date of agreement. In your case, if Rs. 1 Lacs were accepted by Cheque, the stamp duty valuation of 2005 could have been taken for working out the profit.

Query 3]

I am recently transferred from Raipur to Nagpur in the last year. I have two refunds due from the Income Tax Department which is not yet received from the department. How to get it back? How to communicate the IT Department about my new address so that refunds is issued at the new address & not old address. Please suggest.  [krao2319@gmail.com]

Opinion:

  1. You need to make an application to your Assessing Officer pointing out all the facts of the case and also incorporating your new address for forwarding the refund order.
  2. In case there is a refund due and there is a change in address, the readers are advised to modify the address in the income tax department data base. For this, assessee can make an application titled “Request for New PAN Card or/and Changes or Correction in PAN data”. The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [utitsl.co.in, www.tin-nsdl.com or www.incometaxindia.gov.in].

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