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Without actual income also, Income tax can be levied:Tax Talk

Chartered Accountant

No Income- No Tax is not the law
Query 1]
My client Mrs. V.R. received letter/notice from I.T. Department (compliance management cell) regarding financial transactions done by her i.e., (AIR-006)
Purchased immovable property valued at Rs. 30 Lacs or more. She had purchased an Agriculture Land at  Kamptee on Dt. 23/03/2015 F.Y. 2014-15 (30 km far from Gram Panchayat Kamptee) for a consideration of  Rs. 20 Lacs from Mr. XYZ, but Stamp Duty paid was on  Rs. 65 Lacs as per Market Value by valuation authority.
But, as per I.T.returns filed by Mrs. V.R. since 10 to 12 years, she is showing aggregate income of Rs. 35 Lacs. I have read in earlier issues of tax talk that purchasing the property below stamp duty valuation is also taxable. My query is, what are the tax consequences in respect of both Mrs. V.R. & Mr. XYZ? []
“No Income- No Tax” is one of the biggest prevailing misconceptions about income tax. Without actual income also, income tax is leviable by virtue of various provisions in the Income Tax Act-1961.  One such instance is purchasing the property below the stamp duty valuation. Paying stamp duty on a higher valuation than the actual sale price has adverse tax impact for the purchaser also.

By the Finance Act-2013, Section 56(2) has been amended so as to provide that if any individual or HUF purchases any immoveable property for an inadequate consideration (i.e., if the stamp duty valuation of the property is more than the actual purchase price) and the difference between stamp duty valuation and actual purchase price is more than Rs.50,000/-, then such difference shall be taxable in the hands of the purchasing individual or HUF as “Income from Other Source”. For this purpose, stamp duty valuation as on the date of agreement to sale could be considered if any part of the consideration is paid by the purchaser otherwise than in cash. (Earlier only Individuals/ HUF’s were covered by the notional taxing provision. Finance Bill -2017 has proposed to extend the scope of this notional taxation to other categories of taxpayers like firm, AOP, companies etc as well).

After reading above, taxpayers may rightly conclude that purchasing the property below the stamp duty value is also taxing now. Income tax is not always on actual income. Even purchasing property below stamp duty valuation could result in additional tax liability.
It may be noted that the purpose of section 56(2)(vii) which provides for taxability on notional basis is applicable to purchase of property. The meaning of property is given in explanation therein as under:
"Property" means the following capital asset of the assessee, namely:—
(i) immovable property being land or building or both;
(ii) shares and securities;….
Its only the “capital assets” that could be brought to tax u/s 56(2)(vii). As far agricultural land is concerned, it may be noted that only urban agricultural land qualifies as capital assets whereas rural agricultural land is not a capital assets. So, if rural agricultural land is purchased at a value lower than stamp duty valuation, nothing would be taxable u/s 56(2)(vii) on notional basis. 
Rural Agricultural Land:
An agricultural land is considered as rural agricultural land only if it is not situated in any area within the distance (measured aerially) of not more than:
a] 2 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
 b] 6 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
c] 8 Kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
In your specific case, you need to examine whether the land is urban agricultural land or a rural agricultural land. If it is rural agricultural land, nothing would be taxable.
The present notice received by you is with regard to investment in purchase of immoveable property exceeding Rs. 30 Lakh. You can reply it online by logging it at wherein required reply could be given at “compliance” menu which would be displaying information available with the department & the details of the assessment years for which return has not been filed. [If your client is not registered with the e-filing portal, use the “registered yourself” link to register his PAN.
It is learnt that the department have also started issuing notices in cases where the property is purchased at a value lower than the stamp duty valuation & the difference is not offered for taxation u/s 56(2)(vii). If your client receives any such notices subsequently, it can be responded appropriately on the basis of above legal provision.
Query 2]
There appears a change in the tax rebate for small taxpayers under section 87A. I wish to know the position of U/s 87 A for the financial year 2017-2018 i.e. assessment year 2018-2019.  Previously (FY 2016-2017) the rebate of Rs 5,000 or amount of the payable whichever is lower was allowed to small taxpayer who’s total taxable income is up to Rs 5 lakh.  [V.B.Bade, 103, Gulmohor Flats, Tilak Nagar, Nagpur]
The present provisions of section 87A provide for a rebate up to Rs. 5,000/- from the
income-tax payable by a resident individual if his total income does not exceed Rs. 5,00,000/-.
In view of proposed rationalisation of tax rates for individuals in the income slab of Rs. 2,50,000 to Rs.5,00,000 @ 5%, it is proposed to amend section 87A w.e.f. A.Y. 2018-19 so as to reduce the maximum amount of rebate available under this section from existing Rs. 5,000/- to Rs. 2,500/-. It is also proposed to provide that this rebate shall be available to only resident individuals whose total income does not exceed Rs. 3,50,000/-.
Query 3]
I am the share holder of employee co-operative society formed by govt. employee. I have deposited some amount in the society as a fixed deposit for one year. After one year, I will get interest on that amount. Whether that interest is taxable on not? Please give your suggestion. []
Interest earned on deposit with the co-operative society is not exempt from tax. It is fully taxable.
 [The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
or email it at ]

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