Tax Column

The stamp duty valuation is very relevant, both for the seller as well as buyer of immovable property under the Income Tax Act.

Jayesh Dadia, Chartered Accountant

I am an individual aged 55 years. I lost my wife 10 years back. I am now planning to restart my life and going to be married again. I am going to receive substantial gifts on the occasion of my marriage from friends and business associates. Please let me know the tax implications in my hand on receipt of money or property on the occasion of my marriage. 

Gift received in the form of money or any property on the occasion of your marriage is not taxable in your hand. Gift tax has been abolished in India and, therefore, no tax is levied in the hands of giver of the gift, i.e. your friends and business associates. At the same time, under section 56(2)(x) of the Income Tax Act, any sum or any property received without any consideration on the occasion of marriage of individuals is also exempted from income tax. However, you have to establish two things; first, that you have received money or property on the occasion of your marriage and,second,the identity and capability of the giver. Hence, there is no tax implications in your hand. 

What is the meaning of “stamp duty valuation” under provisions of the Income Tax Act and why is it relevant while computing capital gain in the case of transfer of land or building or both ? 

The Explanation to Clause (vii) of Section 56(2),states that ‘stamp duty valuation’ means “the value adopted or assessed or assessable by any authority of the Central government or a state government for the purpose of payment of stamp duty in respect of an immovable property”. 

It is relevant for computing the long term capital gain (LTCG) under Section 48 and also as ‘Income From Other Sources’ under section 56(2)(x) of the Income Tax Act. As per section 50C, while computing the capital gain arising on transfer of land or building or both, if the actual sale consideration of such land and/or building is less than the stamp duty valuation, then the stamp duty valuation will be taken as full value of consideration, i.e. as deemed selling price and capital gain will be computed accordingly. 

For example, MrA sells his flat for Rs 1 crore and stamp duty value of the flat is Rs1.20 crore at which price the stamp duty would be paid. In such a situation, while computing taxable capital gain of flat,Rs1.20 crore will be taken as full value of consideration, although the actual sale consideration is only Rs 1 crore. If the actual sale consideration is more than the stamp duty valuation, then the stamp duty valuation need to be ignored. Under Section 56(2)(x) of the Income Tax Act, if Mr A purchased the flat for Rs1 crore, of whichthe stamp duty valuation is Rs1.20 crore, then the stamp duty value of Rs1.20 crore would be his deemed purchase price. Rs20 lakh will be taxed in the hands of Mr A as ‘Income from Other Sources’ under Section 56(2)(x). Therefore, the stamp duty valuation is very relevant, both for the seller as well as buyer of immovable property under the Income Tax Act. 

I am an individual owning three residential properties in Mumbai. All the three properties are used by me as my residence. All the three properties are located at different locations. What will be the tax implication if a person occupies more than one property for his residence? 

Under the provision of the Income Tax Act, self-occupied property benefit is available only in respect of one property to the owner as his residence. If the person occupies more than one propertyfor his residence, then the self-occupied property benefit will be granted only in respect of one property as selected by him and other property/properties will be treated as deemed to be let out. So you can select one property as your self-occupied property. The other two properties will be considered as let out properties. You have to pay the taxes on reasonable expected rent which is to be determined in case of let out properties. The reasonable expected rent will be higher of the municipal value of the property or fair rent of the property. 

When does one has to pay tax on his income under the Income Tax Act ? 

Answer Generally, the tax on income becomes payable only on completion of the financial year, known as the ‘previous year’ under the Income Tax Act. The financial year in India is April to March. There are various provisions in the Income Tax Act for payment of taxes such as Advance Tax, Tax Deducted at Source (TDS), Tax Collected at Source (TCS), Self AssessmentTax, Regular Tax, etc. If someone’s income exceeds certain taxable limits, then the taxis to be paid in four instalments as Advance Tax within the financial year itself. The tax may also be collected during the previous year itself through TDS and TCS mode. For example, if income consists of salary, professional fees, commission etc., then TDS will be deducted by the payee of the income. At the time of filing the income tax return, if an assesseefinds that he has some balance tax to be paid after taking into account the credit of Advance Tax, TDS and TCS, then the shortfall is to be deposited as Self AssessmentTax. Any tax determined on the basis of final assessment order after taking into consideration the taxes paid, then the payment of any tax, after the assessment order, is known as Regular Tax. There are various provisions in the Income Tax Act relating to interest and penalties for non-payment of taxes, as mentioned above.