The Hindu Business Line : Tax before a house sale?

Mercifully, none in particular at present. But, earlier, they were in vogue and caused much confusion in the minds of people. For example, if your house was in Mumbai and the apparent consideration for sale exceeded Rs 75 lakh, you had to fill a form and submit it to the prescribed authority, which would hand you a cheque for the amount wherever it felt that the real consideration was much more. This was known as preemptive purchase scheme that caused much heartburn among those selling high-valued properties. In Delhi, the scheme became operative whenever the apparent consideration exceeded Rs 50 lakh and in Chennai and Calcutta, Rs 25 lakh.

The rationale behind the scheme was unexceptionable though many called it draconian. In real estate transactions, the cash component is quite hefty, often 40 per cent or more. In other words, to this extent, the real consideration was under-disclosed. The scheme sought to thwart this by a simple logic — one should not be unduly worried who the buyer was so long as he/she received the apparent consideration. The government seemed to throw the gauntlet at the tax evaders, saying "what you wanted was Rs 1 crore, take it from me." When this happened, the seller had to forget the cash component.

The scheme was abandoned some years ago even as it began winning grudging admiration from its detractors. Some called it capitulation to the realty sector. But the more charitable explanation is that the Revenue was saddled with quite a few white elephants in a sluggish market, especially Mumbai. It then threw the baby with the bathwater.

One also needed a tax clearance certificate whenever the consideration exceeded Rs 5 lakh before the sale could be registered. Curiously, even this requirement, sensible as it was, was done away with some years ago. It is true that people were harassed by officials and clerks but, on the flip side, it ensured that tax was collected from the recalcitrant.

While no clearances are required now, one must be prepared for a prolonged assessment where the Assessing Officer feels the consideration disclosed is less than the one fixed by stamp valuation authorities. You must be aware that one should pay income tax as well as stamp duty whenever a property is sold. Under-declaration is an attempt not only to pay lesser tax but also lesser stamp duty. Stamp valuation authorities have what is felicitously known as `guideline value' for each area in a city, which is often alleged to be outrageously higher than the prevailing rate. In short, the government seems to have replaced the preemptive acquisition scheme with one that dovetails the stamp duty regime with the income-tax regime.

Double the choice

Can I buy capital gain bonds instead of a house, following the sale of a house?

Charulata Majumdar, Kolkata

Yes you can. Section 54 and Section 54EC are not mutually exclusive for wannabe sellers of house property; additionally they offer a boutique of options. Under Section 54, one can invest long-term capital gains in another house within the prescribed time. Alternatively, one can invest in capital gain bonds under Section 54EC, with a lock-in period of three years. The two options can also be used simultaneously, so that one half or any other proportion is invested under one scheme and the remaining under the other.

The author is a Delhi-based Chartered Accountant.

(Send in your questions on real estate to TheRealMcCoy@thehindu.co.in

S. MURLIDHARAN

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