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Income tax exemption for owners of unauthorised colonies in Delhi

  • Owner of these properties are exempt from payment of tax on the differential of FMV and purchase price
  • Over 1,700 unauthorised colonies in Delhi were regularised in December last year

NEW DELHI : Owners of Delhi's unauthorised colonies, which were regularised last year, will now get income tax exemption even if they had purchased land or house at rates below the prevailing market price.

The income tax department has issued a notification granting the exemption on "any immovable property, being land or building or both, received by a resident of an unauthorised colony in the National Capital Territory of Delhi, where the Central Government..regularised the transactions of such immovable property based on the latest Power of Attorney, Agreement to Sale, Will, possession letter and other documents .... in favour of such resident".

The notification came into effect from April 1, 2020, and would be applicable for Assessment year 2020-21 and subsequent years. The notification dated June 29 exempts the owner of these properties from payment of tax on the differential of FMV and purchase price.

So far, income tax was levied only on the differential of fair market value (FMV) and actual purchase price, if the house property is acquired at a price lower than the circle rate.

Since these colonies were previously unauthorised, some may have purchased houses or lands at below the circle rate fixed by the government for registration of properties.

Nangia Andersen LLP Partner Suraj Nangia said this is a peculiar case, where the property might have been acquired by respective individuals a long time back by way of General POA (Power of Attorney) or other similar authorisation and only such purchase has been regularised in process of regularising the unauthorised colonies.

"Therefore practically, all the acquisitions before that date of regularisation have been tax exempted by way of present notification, so that individual residents don't have to pay tax on any notional income, even if FMV as on date of regularisation is more than the purchase price of such property," Nangia said.

Over 1,700 unauthorised colonies in Delhi were regularised in December last year after Parliament passed a law allowing ownership rights to be given on the basis of power of attorney, agreement of sale, will or possession letter.

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