Photo: iStock
Photo: iStock

Nature of plot and period of holding are needed to know taxability of transfer

It is possible for the taxpayer (buyer and/or seller) to claim that the fair market value of the property is genuinely lower than stamp duty value in certain circumstances

I had booked a property in October 2013, and it is now ready for possession. I partly funded the property and the rest is financed. It is not registered in my name yet, but I already have someone interested in buying the property. I want to know what the tax treatment will be like, and how to calculate the post-tax returns. Does the buyer need to pay 1% TDS (tax deducted at source)? I have already paid this under the construction-linked plan. Will the capital proceeds be exempt if they are reinvested in a property after selling the one I have? From a tax perspective, is there a better timeline to sell?

—Anand

The two important aspects that need to be evaluated are the classification of asset being sold and the consequent period of holding. The classification of asset being sold (i.e. whether a legal right in a property or a property itself is being sold) will be a fact specific exercise and has consequent implications. Next, it would be pertinent to identify the date of acquisition of the property, i.e. on which date you obtained a legal right to the flat which is now ready for possession, i.e. construction is completed. There are various judicial precedents in both these respects and each has provided guidance based on the specific facts of the case based on date of allotment, date when a majority payment was made, date of possession, and others. 

Hence, based on various facts of your case, a detailed analysis will be required to determine whether you are selling a right in a property or a property itself. Accordingly, the other related implications of period of holding, roll-over relief (exemption from long-term gains tax on reinvestment in another residential property in India), and TDS by buyer will follow.

Does transfer of rights, title and interest in a plot come under Sections 50C and 56 (2)(x)(b) of the Income Tax Act?

—Rajat Mehta 

While more facts, such as the nature of ownership of a plot, nature of a plot, and period of holding are required to ascertain the taxability of the transfer, we have generally commented on the requested provisions.

As per Section 50C, where a specified property (plot of land is covered here) is sold below the stamp duty value (SDV), the SDV is assumed as the sale consideration instead of the actual sale proceeds and a tax is levied on the capital gains for the seller computed using the SDV. 

Where a buyer pays a price that is less than SDV and such purchase cost is less than SDV by more than 50,000, the difference is assumed to be income under Section 56(2)(x) and taxed as “income from other sources" for the buyer. The law was recently amended to provide that where the actual transaction price does not vary from SDV by more than 5%, the above assumptions would not apply from FY19 onwards. 

It is possible for the taxpayer (buyer and/or seller) to claim that the fair market value of the property is genuinely lower than SDV in certain circumstances and in such cases the tax officer may request that a specified valuation officer conduct a valuation of the property. 

I am staying on rent and the rent receipt is in my father’s name. He is retired, and has no income apart from FD interest. Our property is being redeveloped, and we want to buy additional area in the property. I have a brother who earns 70,000 per month. Will it be possible to apply for a home loan in his name so he can avail the tax benefits?

—Ankita Karia

Whether your brother can apply for and is eligible for a home loan is a question best addressed by a banker or financial planner in conjunction with his financial standing. In order to claim tax benefits from paying housing loan interest, the individual will need to be a co-owner of the property. Therefore, your brother without being a co-owner/ party to the asset being acquired may not be eligible to claim the tax benefits related to a housing loan. 

To read more queries, go to livemint.com/askmintmoney

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.Queries and views at mintmoney@livemint.com

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