(The author is past president of ICAI)
The Finance Bill, 2013 has been passed in April,
2013 without any discussion in the Parliament.
The President has given his assent to the
Finance Act, 2013 on 10th May, 2013. New
amendments relating to property transactions have
been made in the Income-tax Act, 1961, which will
make the life of persons entering into sale or purchase
of immovable properties difficult. These amendments
are discussed in this article.
Tax Deduction at Source on transfer of Immovable
Property:
Act, 1961 w.e.f. 1/6/2013. It provides that any
person (Purchaser) who purchases any immovable
property (whether residential or commercial) for a
consideration, shall now deduct tax at source at the
rate of 1% of the amount paid to a resident seller, if
the said consideration exceeds ` 50 lacs. For this
purpose, the term "Immovable Property", is defined
to mean any land (other than agricultural land) or any
building or part of a building. It may be noted that
the section will apply whether the purchaser is
purchasing the property as a capital asset or as stockin-
trade.
This section will apply to all assessees, whether
resident or non-resident, who purchases any
immovable property in India from a resident. In other
words, the obligation for deduction of tax is on every
purchaser of immovable property, whether he is
required to get his books of accounts audited under
section 44AB or not. It will not be necessary for the
purchaser to obtain Tax Deduction Account Number
(TAN) under section 203A. However, the purchaser
will have to file TDS Return and deposit TDS amount
with the Government as provided in section 200,
within 7 days from the end of the month in which the
deduction is made. The seller of the property must
provide his PAN to the purchaser. If this is not done,
tax on the sale consideration will have to be deducted
at 20% as provided under section 206AA. It may be
noted that option of obtaining certificate from the
Assessing Officer under section 197 prescribing NIL
rate or lower rate of TDS, is not available in the above
case.
If the purchase of immovable property is from a nonresident,
the tax will be deductible by the purchaser
at the applicable rate under section 195 as at present.
This new section will not apply to such a purchase.
Similarly, this new section will
not apply to payment of
compensation on acquisition of
immovable property to which the
provisions of TDS under section
194LA are applicable.
It may be noted that a similar
provision for TDS was proposed
to be introduced by insertion of
section 194LAA in the Income-tax Act, 1961 by the
Finance Bill, 2012. Under that provision, it was
proposed that the purchaser of an immovable property
for a consideration exceeding ` 50 lacs in large cities
and ` 20 lacs in other cities shall deduct tax at source
@ 1% of the consideration. For this purpose, the
consideration was to be considered as stated in the
sale deed or stamp duty valuation under section 50C,
whichever was higher. The registering authority was
directed not to register the document unless the
evidence for payment of TDS amount was produced
before him. There was lot of protest against
introduction of such a provision last year. Therefore,
this provision was dropped before the enacting the
Finance Bill, 2012. Similar provision is again
introduced this year and in the absence of any serious
debate, the same has been now brought into force from
1/6/2013.
This new provision is likely to raise some issues as
under:
(i) The definition of immovable property only covers
land (other than agricultural land) or building or
part of the building. This will mean that any right
in a building such as Tenancy Right, Leasehold
Right etc. will not be subject to this TDS
provision.
(ii) If a person has booked a flat in a building under
construction, either the flat is booked before 1-6-
2013 or after that date, and makes payment for
the same, a question will arise whether he is
required to deduct tax at source under this
section. It is possible to take the view that by the
agreement with the builder, the purchaser gets a
right to get the flat when constructed. Therefore,
when the installment payments are made to the
builder there is no transfer of immovable
property. The transfer of flat will take place only
when possession is given. Therefore, the
obligation to deduct tax will arise under this
section only when the last installment is paid
against possession of the flat. However, TDS @
1% will have to be deducted on the entire
consideration for the flat at that time.
(iii) Since there is no specific mention in this section
that the stamp duty valuation will be considered
as consideration for TDS purposes if it is more
than the actual consideration, tax is to be
deducted from the actual consideration payable
as per the sale deed.
(iv) Section 199 of the Income-tax Act, 1961 provides
that credit for TDS amount will be given against
the income in respect of which such tax is
deducted. In a transaction of sale of immovable
property, the seller will be showing income from
such sale under the head "Capital Gains" or
"Income from Business or Profession". It may so
happen that an individual selling his immovable
property may claim exemption under section 54
or section 54F due to reinvestment in another
property or under section 54EC by reinvestment
in Bonds. In all such cases, credit for TDS under
this new section will be available even if the
income computed under the head "Capital Gains"
is NIL.
(v) If the property is purchased by two or more
persons as co-owners the tax will be deductible
by each co-owner in respect of his/her share of
the consideration paid if the total consideration
for the property exceeds ` 50 lacs. This section
also applies in respect of purchase of property
from a relative.
Taxation on Sale of Property by a dealer in Real
Estate:
New Section 43CA is added in the Income-tax Act,
1961 from A.Y. 2014-15. Therefore, it will apply to
Real Estate transactions entered into on or after 1st
April, 2013. Up to 31-3-2013, in the case of transfer
of Immovable Property (Land, Building or Both) which
was held by the seller as capital asset, if the
consideration was less than the market value adopted
for the purpose of payment of stamp duty, such stamp
duty valuation was considered as the full value of the
consideration under section 50C. Thus, the capital
gain in the hands of the seller was computed on that
basis as provided under section 50C. This provision
was not applicable to Immovable Property held by
the seller as stock-in-trade.
By introduction of this new section, it is now provided
that the above concept of sec. 50C of adopting stamp
duty valuation as full value of consideration will apply
for computation of business income in the hands of
seller who holds such property as stock-in-trade. The
provisions of section 43CA are made applicable w.e.f.
previous year 2013-14 to such transactions. This new
provision will apply to Builders, Developers and
Dealers engaged in Real Estate Transactions. The
provision will apply according to method of
accounting followed by the assessee. This will mean
that this concept of adopting stamp duty valuation
will now apply to a person selling property held as
Capital Asset as well as Stock-in-trade.
It is also provided in this section, that if there is a
time gap between the date of Agreement of Sale and
date of Registration, the Full value of the consideration
will be determined with reference to Stamp Duty
valuation estimated on the date of the Agreement of
sale provided that full or part of the consideration
stated in the above Agreement was received by any
mode other than cash on or before the date of
agreement of sale.
It may be noted that the definition of Immovable
Property for the purpose of section 43CA or section
50C does not include any right in the Immovable
Property such as leasehold or tenancy right etc. If the
assessee has booked a flat in a property under
Construction, the right to get possession of the flat is
not covered under the section. However, when
property is constructed and the possession of the flat
is taken, the section will apply with reference to the
Agreement for sale when executed.
Tax payable by purchaser and Seller on Notional
Amount:
Section 56(2)(vii) is amended from A.Y. 2014-15. This
section provides for levy of tax on certain gifts received
from non-relatives. This amendment comes into force
in respect of transactions relating to purchase of
Immovable Property i.e. Land, Building or both made
on or after 1-4-2013. Upto 31-3-2013, if an Immovable
Property was received by an Individual or HUF from
a non-relative, without consideration, the Stamp Duty
Value on the date of the gift, if it exceeds Rs. 50,000/-,
was treated as income from other sources in the hands
of the assessee. There is no change in this provision.
However, it is now provided, w.e.f. 1-4-2013, that if
the purchase of an Immovable Property by an
Individual or HUF is made for consideration which
is less than the Stamp Duty Valuation, the difference
will be taxable as income in the hands of the
purchaser. This provision will apply even if an
Individual or HUF purchases an Agricultural Property.
It is now also provided by this amendment that if there
is a time gap between the date of the Agreement for
purchase of the property and date of Registration of
the Agreement, the Stamp Duty Valuation assessable
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July 2013 I The Chartered Accountant Student 13
on the date of the Agreement will be considered for
this purpose. This concession will apply only if full
or part of the consideration stated in the Agreement
is paid by the purchaser before the date of agreement
by any mode other than cash.
For this purpose, the term "Immovable Property" is
defined to mean "Land, Building or Both". This will
mean that any right in the Immovable Property will
not be covered by this provision. Therefore, any
Tenancy Right, Leasehold Right or similar right will
not be considered as Immovable Property. If a flat in
a building under construction is booked by the
individual or HUF, the right to get possession of the
flat will not be considered as purchase of Immovable
Property under this section.
It may be noted that if the difference between the
stamp duty valuation and actual consideration
exceeds ` 50,000, tax will be payable on such notional
difference by the seller and the purchaser under the
following sections.
(i) In the case of the seller who is holding the
Immovable Property as stock-in-trade tax will be
payable as business income under new section
43CA - w.e.f. 1-4-2013.
(ii) In the case of the seller who is holding the
property as Capital Asset tax will be payable as
capital gain under section 50C.
(iii) In the case of Individual or HUF purchaser, tax
will be payable under section 56(2)(vii) w.e.f. 1-
4-2013 as income from other sources.
It may be noted that amendment similar to what has
been made, as stated above, in section 56(2)(vii) was
made by the Finance (no.2) Act, 2009, w.e.f. 1-10-2009.
It was pointed out to the government that such a
provision is unjust as both seller and purchaser of
the Immovable Property will have to pay tax on this
same notional addition. This was realized by the
Government and in the Finance Act, 2010, this
provision for levying tax on the purchaser was
withdrawn with retrospective effect from 1-10-2009.
This year the same amendment is made to tax the
purchaser w.e.f. 1-4-2013 which has the effect of
levying tax on the seller as well as purchaser on the
same notional addition.
Conclusion:
From the above discussion, it is evident that
amendments made this year relating to TDS from
consideration paid or payable on purchase of an
Immovable Property under new Section 194-IA will
put persons paying tax and those who are not liable
to pay tax into many practical difficulties of deducting
1% tax at source, depositing the same with the
Government and filing return of TDS. There will be
some issues relating to date on which such tax is to
be deducted when Flat is booked prior to 1/6/2013 or
after that date in a building under construction and
payments are made in installments.
Amendment made in Section 56(2)(vii) levying tax
on the notional amount of difference between stamp
duty valuation of an immovable property sold and
the actual consideration paid by an Individual or HUF
(Purchaser) will mean levying tax on the same notional
amount in the hands of the seller as well as purchaser.
Such tax is payable even if the Individual or HUF
purchases an agricultural property. It may be noted
that such tax is not payable if the purchaser is a Firm,
LLP, Company or persons other than individual or
HUF. Similar tax was levied in 2009 but was
withdrawn in 2010 with retrospective effect. The
Government has again levied this type of tax which
is payable by individual/HUF purchaser and seller of
the property on the same notional amount.
It is rather unfortunate that such harsh and unjust
provisions are brought in the Income-tax Act, 1961
without any serious public debate. The provisions
which were introduced earlier and later on withdrawn
with retrospective effect are enacted without any
explanation in the Explanatory Memorandum
presented to the Parliament. Such matters which put
additional burden on tax payers ought to be
considered only after serious public debate.
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