Tax impact varies with Time, Place & Heads


Tax impact

Query 1]

I purchased plot on 1st June 2006 on installment bases for Rs. 1,05,500/- & incur Rs. 7,500/- towards registry expenses. I have sold the said plot on 23/01/2015 for Rs. 5,84,000/-. The full amount is give on 23/02/2015 for purchase of plot. It is still not registere as Release Letter (RL) is not obtain from Nagpur Improvement Trust (NIT). Please clarify the following:

  1. What is the obligation in regards Income tax?
  2. What is the time limit to show in IT returns?
  3. Any delay in registration, how should overcome this? [CRM]


Most of the taxpayer may not know the fact that sale deed is not the only documents that give rise to taxable event in respect of property transactions. Likewise, receipt of entire consideration against sale of property may not be decisive factor for taxing the income thereon. The profit in respect of capital assets is taxable at the time of transfer. “Transfer” is a wider and broader term than mere “Sale”.

For levy of income tax, “transfer” is utmost relevant. Tax impact varies with time, place, & heads of income. For the taxpayers who are not into the business of land trading / development /builder-ship, even handing over the possession of the property would amount to transfer & would attract income tax, even if the consideration for the same is not fully received or even if the sale deed is not executed.

In your specific case, it appears that you have received the entire amount against sale of plot on 23.02.2015. However, the sale deed of the plot could not be execute for some technical reasons. Since entire amount against sale of plot is receive, the purchaser might have take over the possession of the property either by executing some sort of unregister  document or through register power of attorney etc.

If so or if anyhow the possession is hand over by you in favor of the buyer, the profit on sale of plot would be liable to capital gain tax in the FY 2014-15. In such case, you would be require to show the transaction of transfer of plot in the income tax return for the FY 2014-15 only & you would be required to file your income tax return accordingly. In such case, your capital gain working would be based on the higher of actual sale consideration or government value prevailing at the time of handing over the possession of the property for levy of stamp duty.

You would not be required to show the transaction subsequently again at the time of executing the sale deed of the plot & the subsequent government valuation/sale deed won’t attract additional tax burden provided that you properly document the fact of transaction in the sale deed, more particularly of handing over the possession of the property in the FY 2014-15.

If however the possession is not handed over by you to the buyer, then it would be taxable in subsequent year in which the sale deed is executed & the possession is handed over. In such case, there is no tax liability in the FY 2014-15 even though entire amount against the sale of plot is receive by you. However, in such case, you may be subsequently subject to the rigor of section 50C as the government valuation of the property for levy of stamp duty shows an increasing trend year after year and your future tax liability would be dependent on the government valuation at the time of handing over of the possession/sale.

Now, what is better- whether to handover the possession of the property instantly in such case. Or defer the handing over the possession of the property. No standard & isolated opinion could be expressed in such case. The transaction could be plann in such a way that the tax bill of the taxpayer is minimize or link with the cash flow of the transactions.

When the deal is finalize and entire consideration is receive by the seller. Then even though the sale deed cannot be execute for any reason whatsoever. It is normally advisable for the seller to handover the possession of the property by some documentary. Evidence so that capital gain can be book in that year itself. This would nullify burden of Section 50C as the government valuation of the property shows an increasing trend.

But, in some cases. Not handing over the possession. The property in such case could be a part of well plann tax tool by the taxpayer. For example, for saving long term capital gain tax, individual taxpayers has to invest the amount in a specify mode. Within specified time frame (which may vary from 6 months to 3 years).

Now, this specified time frame would be commencing from the date of transfer of plot. Without repeating what has been mention earlier. Taxpayers can plan the timing of their transactions in such a way. That the condition of specify time frame is fulfill for saving tax. While doing the property transaction, effect of income tax should not be overlook. Right to tax planning has been recognize by the judiciary & timing of income could play an important role in managing tax impact.

Tax impact

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