• IT Act 56(2) vii effect on buying a property

I am going to buy a flat from a member of co-op housing society, at Newtown Rajarhat, Kolkata. His price is 32,00,000 which is his acquisition cost(latest indexed cost). Now the govt. value of the flat is 77,00,000. In this case whether I have to pay income tax as per IT Act 56(2)vii, or housing society property transfer is exempted from IT Act 56(2)vii
Asked 11 months ago in Property Law from Kolkata, West Bengal
Religion: Hindu
1)S. 56(2)(vii)(b), as substituted by the Finance Act 2013, provides that if immovable property is transferred for a consideration which is less than the stamp duty value, the difference is assessable as income in the transferee’s hands

2) you have to pay tax as per provisions of IT Act 56(2) vii 
Ajay Sethi
Advocate, Mumbai
23339 Answers
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Section 56(2)(vii) of the Income Tax Act, 1961 deals with transfer of an immovable property being received by an Assessee as Capital Assets. The section applies only to individuals and HUFs. Transactions related to purchase of property by company, partnership firm, LLP, Trust, AOP, AJP are out of the purview of this section. The stamp duty value of immovable property should be more then Rs.50,000/- if property is transferred without any consideration. The difference in stamp duty value and consideration amount received should be less then Rs.50,000/- if the immovable property is transferred without inadequate consideration. In case of point no 2 above, stamp duty value shall be treated as deemed consideration for the purpose of Income Tax. In case of point no 3 above, stamp value shall be treated as deemed consideration for the purpose of Income Tax, if the value of stamp duty is higher than consideration value by more than Rs.50,000/-  If the consideration amount has been paid by mode other than cash either partly or fully in the year of agreement prior to the year in which the registration of the property is done, the stamp value of the property of the year in which agreement to sell was executed shall be treated as deemed consideration in the year of registration for the purpose of Income Tax. 
S. 56(2)(vii)(b), as substituted by the Finance Act 2013, provides that if immovable property is transferred for a consideration which is less than the stamp duty value, the difference is assessable as income in the transferee’s hands.

Finance Act, 2013 has substituted clause (b) of section 56(2)(vii) w.e.f. 1.4.2014 providing, inter alia, that where an individual or Hindu Undivided Family receives, in any previous year, from any person or persons any immovable property-
(i) Without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration shall be chargeable to income tax under the head “Income from Other Sources”.
In case assessee being Individual or HUF has acquired the immovable property as trading asset, the enhanced value of such asset cannot be accounted for in the books of accounts by the assessee, as no such provision corresponding to section 49(4) has been brought under the head ‘Profit & gains of business or profession’
Prior to the above substitution, the provision of clause (b) was introduced u/s 56(2)(vii) w.e.f 1st Oct, 2009 laying down that in a case when any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds Rs. 50000/-, the stamp duty value of such property was taxable in the hands of the transferee individual or HUF under this section as “Income from other sources”. Finance Act, 2013 has thus extended the scope of this section, inter alia, covering the cases when any immovable property is received by an individual or HUF for inadequate consideration.

So you have to pay tax as per provisions of IT Act 56(2) vii.
Ajay N S
Advocate, Ernakulam
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19 Consultations
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1) in order to confer clear and marketable title to property it is necessary that sale deed be duly stamped and registered 

2) postponing registration by 5 years is not a good idea . 

3) if you dont have money dont go ahead with the deal 
Ajay Sethi
Advocate, Mumbai
23339 Answers
1220 Consultations
5.0 on 5.0
If immovable property is transferred for a consideration which is less than the stamp duty value, the difference is assessable as income in the transferee’s hands. 
The underlying assumption in  the situation is that the actual consideration passed on the transfer of immovable property can not be less than circle rate/ Stamp duty Value and in case the apparent consideration shown in the transaction is less than the stamp duty value, for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration shall be chargeable to income tax under the head “Income from Other Sources”.
Your understanding in this regard for the individual or HUF is incorrect. This exemption is available only if the transferee of property is a person other than individual or HUF i.e. a Company, Firm, LLP etc.
Thus, if an immovable property is purchased by a person other than an individual or HUF for a consideration which is less than Stamp Duty Value / Circle Rate, there will not be any implication or attraction of the provision of this section. There is however nothing explicit as to why only individual and HUF have been brought into the ambit of this section and as to why other persons have been left out. The only broad rationale one can gesticulate & comprehend is that the origin of the provision of section 56(2)(vii) relates to the introduction of the concept of gift/ deemed gift into the income Tax Act after the abolition of Gift Tax Act and since the gift tax used to affect largely to individual and HUF, the applicability of this provision has also been restricted to individual and HUF only.
T Kalaiselvan
Advocate, Vellore
14138 Answers
127 Consultations
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Time period between which I have to pay the tax to IT Department. If I postpone the registration of the property for 5 years, shall I pay the income tax under 56(2)vii in 5th year from now. As the section 56(2)vii states "where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—". Truly speaking I have not such amount of money to buy the property and pay the income tax as well as registration cost at present.
Since the purchase is deemed to be completed only after registration of the sale deed, it is obvious that there can be no tax for which there was no transaction.
Therefore the question does not arise.
T Kalaiselvan
Advocate, Vellore
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127 Consultations
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Postponed the registration is not get any more advantage .If you have not much money then how can comply the law and its procedure for fulfillment of a deal.
Ajay N S
Advocate, Ernakulam
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19 Consultations
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