Tax Column

I own a building that has a ground and first floor. The ground floor has been given on rent since many years to an individual tenant. Despite my repeated requests, he has refused to vacate until I agreed to pay a compensation of ₹10 crore. While making this payment, am I supposed to deduct TDS under Section 194 IA of the Income Tax Act? [EasyDNNnews:PaidContentStart]

The provisions of Section 194 IA are applicable only if there is a transferor and a transferee. In your case, your tenant is giving the possession of your own premises back to you. Therefore, he is not transferring any rights in your favour. Further, the provisions of Section 194 IA can be invoked only if there is a transfer of land or building. In your case, there is a surrender of tenancy right and not a transfer of land or building. As such, the provisions of Section 194 IA are not applicable in your case and you are not liable to deduct withholding tax. Further, the entire ₹10 crore compensation paid would increase your cost of the building in your books of accounts. When you sell the entire building, the original cost plus additional ₹10 crore would be allowed as deduction from the sale consideration while determining the long-term capital gain. 

I am a foreign citizen having an OCI card. I did not have taxable income in India. During the financial year 2021-22, I agreed to purchase a residential flat which was under construction, the possession of which has still not been given to me. I have received a notice from the Income Tax Department drawing my attention to the purchase of immovable property but not having filed an IT Return for the assessment year 2022-23. Could you explain what I am supposed to do? 

Under Section 139(1) of the IT Act, an individual is under obligation to file Return of Income if he has earned income exceeding the exemption limit. In other words, if an individual has no taxable income, he is not under any obligation to file a Return of Income. However, provision to Section 139(1) of the IT Act makes it obligatory on the part of an individual who has no taxable income in India to file Return of Income if he owns any immovable property comprising land and building. Since you have registered an agreement for acquiring an under-construction property, the Income Tax Department has received that information and issued a notice. 

You may respond to the notice stating that you have just entered into an agreement for an under-construction property and not obtained its possession. What you acquired relating to assessment year 2022-23 is a right in the premises and not its possession. Right in premises cannot be equated with ownership in land or building. Therefore, for assessment year 2022-23, in your case, you are not under obligation to file Return of Income under Section 139(1) of the IT Act. Therefore, you have rightly not filed the Return of Income. Kindly note that once you take the possession of your apartment, that year onwards you are supposed to file Return of Income every year even if you do not have any taxable income in India. 

I am an individual and a beneficiary of a family trust which is a discretionary one with the shares being undetermined. During the current financial year, I have withdrawn substantial money from the family trust. Does this entail any tax implications? 

Since your family trust is a discretionary one where the shares of the beneficiary are not known, then in that case the family trust has to pay tax on its income at the maximum marginal rate. Under the provision of Section 164 of the Income Tax Act, a trust is liable to pay tax at the maximum marginal rate where the shares of the beneficiary are not known. Therefore, once the trust pays the taxes, the distribution or withdrawal of fund, after paying taxes, cannot be taxed in the hands of the beneficiary. If it is taxed, it would amount to double taxation. Therefore, in my opinion, the entire money withdrawn from the family trust will not have any tax effect in your hand 

I have purchased a residential property for a consideration of ₹20 crore. The stamp duty valuation of the said property works out to ₹25 crore. Is there any tax implication in my hand and can I get any benefit of the same in the future? 

Under Section 56(2)(x) of the Income Tax Act, if you purchase any immovable property at less than the fair market value, the difference between the actual consideration paid and the fair market value would be taxed in your hand as income from other source. The fair market value will be as per the ready reckoner or stamp duty valuation. In your case, there is a difference of ₹5 crore between the actual consideration and the fair market value. Therefore, ₹5 crore may be taxed in your hand as income from another source at 30 per cent plus the applicable surcharge. However, the deemed cost of ₹5 crore would be allowed as cost when you sell the property in the future. The provision of Section 49(4) of the Income Tax Act treats such deemed cost as cost for the purpose of computing capital gain. 

I am a widow and have received a gift of ₹2 crore from my daughter-in-law. Will this be taxable? 

Under Section 56(2)(x) of the Income Tax Act, a gift received from a relative is not taxable in the hand of the recipient provided it falls within the definition of relative. The definition of relative given under the Income Tax Act includes gift received from lineal, ascendants and descendants of individual or spouse of the individual. Your son is your lineal descendant. Therefore, the spouse of the son falls in the definition of relative. As such, the gift received by you will be exempted from tax.

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