The Hindu Business Line : Govt to widen tax net for property transactions

New Delhi, July 8 Tax planning around gifting of immovable and movable properties will soon turn out to be a difficult task for taxpayers if a Budget proposal gets Parliamentary nod.

The Government plans to amend the income-tax law to curb “black money” transactions in the property market.

Come October 1, the value of any property received without consideration or received with an inadequate consideration will be included in the computation of total income of the recipient. Simply put, such transactions would be taxable at the hands of the recipient under the head “income from other sources”.

The proposed change in law would cover immovable property (land, building), shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art.

Some Centre and State politicians have been using the gifting route to get away from the taxman’s net. They have been contending that properties and jewellery had been given to them out of love and affection by party workers and loyalists.

Income head

Currently, any amount in excess of Rs 50,000 received without consideration by an individual or a Hindu Undivided Family is chargeable to income-tax in the hands of the recipient under “income from other sources”.

So far, anything received in kind having “money’s worth” – property – was outside the purview of tax provisions.

In the case of an immovable property received without consideration and where the stamp duty value of such property exceeds Rs 50,000, the stamp duty value of such property is proposed to be taxable as income from other sources. Where the consideration is less than the stamp duty value, the stamp duty value reduced by the consideration received would be taxable as income from other sources.

However, the proposed change will not apply when the property is received from any relative or on occasion of marriage of the individual, or under a will or by way of inheritance or in contemplation of death of the payer or donor or from any local authority or certain registered trust.

Also, money or property received from any fund or foundation or university or other educational institution or hospital or medical institutions will be excluded from the purview of the proposed change.

Return of gift tax

Some tax experts see the proposed law as a return of the “gift tax”, albeit in a different form and also as a tax on income.

“To a limited extent, this is a return of gift tax,” Ms Neeru Ahuja, Tax Partner, Deloitte Haskins & Sells, told Business Line. She also said that the proposed changes would curb shifting of tax base from one assessee to another to avoid tax.

Mr G. Ramaswamy, Member of the ICAI’s Direct Tax Committee, said in the case of inadequate compensation for an immovable property, the transferor and transferee may now be required to pay tax (though under different provisions).

He also noted that litigation between the taxpayer and tax department could increase on account of the proposed changes. There is a need for clarification as the tax department may now see a “gift element in any normal property transactions done through transfer deeds,” Mr Ramaswamy said.

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