Simplified Laws Guide to Taxation and Legal Concern
I have posted several articles about property matters. This article is about practical issues faced by buyers/sellers. I have compiled seven issues here. Hope this helps.
- Sale Value Vs Guidance Value – Normally, the sale value is more than the guidance value notified by the Government! If the property is registered for guidance value, the buyer will save on registration charges and stamp duty. Similarly, the seller will save on capital gain tax. So, both of them are tempted to register the property for guidance value.
- Transfer of Funds – The buyer insists to pay by cheque (but not willing to pay additional stamp duty) and the seller will end up in accommodating the request. So, what will happen to the seller when it comes to capital gain tax payment? For example, the guidance value of the property is Rs.60 Lakhs, but the agreed sale value is Rs.75 Lakhs. The buyer will pay Rs.15 Lakhs by cheque and Rs.60 Lakhs by DD.
- Tax on difference amount – If one goes by the sale value as per registered sale deed, the capital gain tax will be lower. But the problem is that the seller gets the different amount of Rs.15 Lakhs via cheque. Can he account it as part of sale consideration? Can he take tax exemption by reinvesting the entire Rs.75 Lakhs? Many such cases were countered by the tax department.
- The assessing Officers view – Many assessing officers have gone strictly by the value in Sale Deed. Thus the exemption is given considering the sale value (in the above example it is Rs.60 Lakhs). The difference amount of Rs.15 Lakhs is considered as Income from Other Sources and taxed at normal rates.
- Whether the assessing Officer is right? Strictly speaking, yes. However, many judgments have gone in favor of sellers. The courts pronounced that unless the buyer disagrees that he has not paid the money as part of sale consideration, one can’t classify it as income from other sources. However, at ITO (officer’s) level, it may be difficult to get the relief for assessees. They may have to appeal to get the relief.
- Can registration authorities demand more stamp duty? Of course, yes. The stamp duty has to be paid on actual sale consideration. The guidance value is a benchmark rate, below which the property can’t be registered and even if it is registered, the department can recover the amount and also levy penalty for undervaluation of property. But if the actual sale value is more than the guidance value, the buyer has to pay stamp duty on actual sale value (not on guidance value). So if the seller is showing it as part of sale consideration, technically, the buyer has to pay additional stamp duty.
- Are they tracking these transactions? So far No. But the way computerization is being undertaken in government departments, I am sure, the days are not too far when these transactions can be tracked by both tax department and revenue department.
Thought for the day
The rich invest their money and spend what is left. The poor spend their money and invest what is left.
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Realy helpful article… Need some urgent and simple advise. we have brought a house in Karnataka for Rs 40 L and registering this for Rs. 21 L as per Govt guidance value. Now that of of incremental amount of Rs. 19 L on top of 21 L will be paid in white by cheque (some from bank loan as well with a market value funding). Seller is fine to show all white as they will put this is bank capital gain ac to buy an apartment… since that we are registering house at Govt value of 21 but paying additional 19L in cheque, will this cause any problems from authorities of -taxes or sub registrar etc for buyers?
And also will this create any tax burden for seller as per current laws? please guide as soon as possible as we have planned to register this on coming saturday…. Many thanks.