Income Tax Law while buying and selling the Property
Most of the high valued transactions in general are the property transactions. For many, these are transactions involving years of savings. Many provisions of the Income-Tax Act related to property transactions are still not known to people in general. Taxpayers often encounter notices from the income tax department even in respect of genuine transactions. Let us know about the tax laws related to the property transactions so as to avoid the unnecessary tax implications, notices & consequences:
- Income Tax liability if the property is purchased below its stamp duty valuation:
Stamp Duty Valuation (SDV) or Ready Reckoner Valuation of the property is a benchmark price for taxation purposes & plays an important role in income tax law. If the property is purchased below its SDV then the difference is taxable as income of the buyer. It is presumed that the buyer has earned the difference amount by purchasing the property below its SDV. For example, Mr. A has purchased the property from Mr. B for Rs. 75 Lakh as against its SDV of Rs. 1 Cr. In such case, the difference of Rs. 25 will be considered as income of Mr. A & it will be presumed that the Mr. A has earned Rs. 25 Lakh by purchasing the property worth Rs. 1 Cr for Rs. 75 Lakh.
If the agreement to sale was entered before the sale deed & transaction is backed by payment through account payee instruments or digital mode then the SDV of the date of agreement could be adopted instead of the stamp duty valuation of the date of sale deed. Further, the difference will not be taxable if the SDV doesn’t exceed 10% of the actual sale consideration.
- Income Tax liability if the property is sold below its stamp duty valuation:
One needs to be cautious while selling the property below its SDV. In the same example as discussed above, Mr. B would be liable to pay the capital gain tax by considering the value of Rs. 1 Cr despite the fact that he has sold the property for Rs. 75 Lakh only. Even if the person has genuinely sold the property for Rs. 75 Lakh, still tax liability would arise on Rs. 1 Cr.
However, the capital gain would be calculated on the actual amount only in case SDV doesn’t exceed 10% of the actual sale consideration .
[Surprisingly, selling & purchasing the property below its SDV results in double taxation, in the hands of the seller & buyer both. In above example, Mr. A & Mr. B both would be liable to pay the tax on income of Rs. 25 Lakh].
- Seller not allowed to accept Rs. 20,000/- or more in cash:
Income Tax law prohibits the acceptance of Rs. 20,000/- or more in cash against the sale of the property. If any person violates the law by accepting the amount against sale in cash then penalty is applicable U/s 271D which can be an amount equal to the amount accepted in cash. Taxpayers may note that the income tax department is getting the information of cash acceptance from the registrar office and the penalty has been imposed in various cases on various sellers for acceptance of cash.
[There is no penalty on the sellers for giving the amount for purchase in cash.]
- Buyer not allowed to repay Rs. 20,000/- or more in cash:
If for any reason, the deal of the property is cancelled then the buyer is not allowed to repay the amount of Rs. 20,000/- or more in cash. If any person violates then penalty is applicable U/s 271E which can be an amount equal to the amount repaid in cash.
- Liability of Buyer to do TDS::
While purchasing the property of value of Rs. 50 Lakh or more, the buyer is required to do TDS @1%. The amount is required to be deposited by the buyer in the return cum challan Form No. 26QB within one month from the end of the month in which TDS is done. TDS shall be required @ 1% of actual sale consideration or the stamp duty value of the property, whichever is higher. TDS has to be done on SDV if it is higher than actual sale consideration. There is no tolerance band of 10% for difference in the actual consideration vis a vis SDV.
(If the property is purchased from NRI: The buyer has to do TDS at the following rate:
(i) @ 20% plus surcharge & cess in case property is sold or transferred by non-resident after two years of its purchase or (ii) @ 30% plus surcharge & cess in case the property is sold/transfer within two years or less of purchase. In case of purchase of property from NRI, there is no monetary limit of Rs. 50 Lakh. This means that even if the sale value of the property is Rs. 5 lakhs, the TDS will be applicable).
Taxpayers have to be cautious while filing or reporting the transaction in the ITR, mostly on offering the notional income in respect of property transactions. Lot of taxpayers might have received the notices in the last few months for high value transactions. Taxpayers should be careful in responding to this message so as to avoid unnecessary proceedings.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at email@example.com. Other articles & response to queries are available at www.theTAXtalk.com]