U/s 56(2)(x), if anyone 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 purchaser as “Income from Other Source”.

Proper documentations & planning could lower tax incidence

Query 1]
I have purchased a plot in FY 11-12 for Rs. 10 lacs from a developer. But due to some dispute, the developer was not ready to register the plot in my name. But now the developer is ready for registry in this FY only. The market value of the plot is 50 Lakh. My query is:
1. If I sale the plot in 2 or 3 months just after the registry, will I be liable for tax under LTCG or STCG?
2. If not then what are the tax saving opportunities available to me?
Please advice. [adityapatel025@gmail.com]
Opinion:
Before coming to specific issues raised in the query, taxpayer should know the provision of section 56(2)(x) of the Income Tax Act-1961. U/s 56(2)(x), if anyone 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 purchaser as “Income from Other Source”. For this purpose, stamp duty valuation as on the date of agreement to sale (i.e., FY 2011-12 in your case) could be considered if any part of the consideration is paid by the purchaser otherwise than in cash. In short, Income tax is not always on actual income. Even purchasing property below stamp duty valuation could result in additional tax liability.
In your specific case, it appears that
a] you are getting the actual title over the property by executing sale deed in FY 2017-18 as against agreement in the FY 2011-12 & effective purchase (along with possession/enjoyment over the plot) has occurred in the FY 2017-18.

b] You are getting it for Rs. 10 Lakh as against the Stamp duty valuation of Rs. 50 Lakh.

If it is so, Rs. 40 Lakh would be taxable as your income in the FY 2017-18 u/s 56(2)(x). However, if you have paid the amount at the time of agreement in FY 2011-12 by any mode other than cash then stamp duty valuation at the time of payment (& not Rs. 50 Lakh) would be relevant for the purpose of section 56(2)(x).

If you sale the plot within 2/3 months of its purchase then subsequent profit is liable for taxation as Short Term Capital Gain (STCG) as the holding period of the plot will not be exceeding 2 years (3 years till 31/03/2017). If any amount is brought to tax u/s 56(2)(x) as mentioned above, then it will form the part your cost of acquisition and subsequent profit would be calculated by taking such value (i.e., Rs. 50 Lakh or stamp duty value of FY 2011-12, as the case may be) & not Rs. 10 Lakh as your cost of acquisition.

(It is presumed that possession/enjoyment of the plot is in the FY 2017-18. If the possession/payment/enjoyment has occurred in the FY 2011-12 then the present transactions of sale within 2/3 months would result in LTCG as your holding would be reckoned from FY 2011-12).

Tax Planning Tips:
1.      You will be selling the property within 2/3 months of its purchase. As a result, you will be earning Short Term Capital Gain. There is also a possibility of getting taxed u/s 56(2)(x). In either case, your tax slab would be higher.
2.      The tax incidence could be lowered by properly channelizing & documenting the transactions. You can ask the developer to execute the sale deed directly in favor of the proposed buyer by taking you as a consentor in the sale deed & incorporating the details of agreement & facts of disputes. By joining you as a consentor, you can receive the amount towards surrender of your rights over the plot. “Right” in the property is a “Capital assets” and you have acquired the right in the FY 2011-12. By relinquishing the right over the property, you will be earning Long Term Capital Gain which (a) enables an option to claim LTCG exemption u/s 54EC & 54F (b) is taxable at flat rate of 20%.

Query 2]
We (my own sister and I) are planning to purchase a 2/3 BHK flat for residential purpose in the joint names of us. We both are Govt. employees and independent tax payers. The consideration amount & other sundry of flat will be from bank loan @ 60% on co borrower basis and rest would be from our independent personal savings. In such, my queries are:

Can we purchase it jointly in certain percentage share basis? If yes, please guide us about tax benefit to be claimed?
Under which articles, we can avail tax benefits/ exemptions separately, if bank loan deduct from our salaries accounts individually. Also explain if any other pros and cones?
How does it mention/inform in IT form when it (flat) will be between Rs. 50 to 75 lakh because as per IT rule, house property more than â‚¹. 50 lakh should be informed in IT return form? [G.Yashogupta-gyashogupta@gmail.com]

Opinion:
1.      Tax benefit on housing loan:
Interest on housing loan offers deduction u/s 24(b) of the Income Tax Act-1961 up to a maximum of Rs. 2 Lacs p.a in case of self occupied house property. Additionally, principal repayment of housing loan is also eligible for deduction u/s 80C subject to overall maximum cap of Rs. 1.50 Lacs. Even stamp duty, registration expenses etc paid for purchase of a house property is also eligible for deduction u/s 80C, subject to same overall cap of Rs. 1.50 Lacs.
2.      Joint Ownership:
House property can be purchased in joint ownership & share of each owner could be incorporated therein. Purchase of property & availment of loan thereon in joint name could be used as a tax planning tool as well. Any single individual cannot get deduction of more than Rs. 2 Lakh towards interest on self occupied house property & Rs. 1.50 Lakh towards principal repayment of housing loan. So, if the interest on housing loan &/or the principal repayment is exceeding the said ceiling, the benefit could be extended to other co-owner by purchasing the house & availing the loan thereon in joint name. In your specific case, by purchasing & availing the loan jointly, both of you would be able to take the optimum tax benefit of housing loan.
3.      Compliance if value exceeds Rs. 50 Lakh:
If the purchase price of any immoveable property exceeds Rs. 50 Lakh then purchaser is required to deduct tax at Source (TDS) @ 1% of the purchase price. The same is required to be deposited in the Government treasury in a Challan cum Return Form (No. 26B.). There is no special reporting requirement in the ITR form even if the purchase price of the flat is exceeding Rs. 50 Lakh.

The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]

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