Last Updated on April 26, 2020 by Legalseva.net
Transfer of Property means conveying property in present or in future to one living person to another. Property should be in existence on the date of transfer. There can be no transfer of future property. The Act contemplates following kind of transfers:
- Sale
- Mortgage
- Lease
- Exchange
- Gift
Whenever a person transfers his property to another person, the income tax comes into action. On transfer of capital asset ,capital gain arises. Following is the brief summary of tax on transfer of property ie capital gain
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Capital Gain Charging Section
As per Section 45(1) of Income Tax Act,1961 “Any profit or gains arising from transfer of a capital asset effected in previous year shall be chargeable to income tax under the head capital gains in the previous year in which transfer takes place”. Any profit arising from the sale of capital asset is capital gain.
Meaning of Capital Asset and its classification
Capital asset means any property held by assesse whether or not connected with his business , but does not include any stock in trade , personal effects ,rural agricultural land ,gold deposits bonds under Gold Monetization Scheme.
Capital gain are classified into two categories based on their period of holding (i)Long Term Capital Gain & (ii) Short Term Capital Gain .In case of immovable property ,if the period of holding is more than 24 months (As amended by Finance Act,2017) then it will qualify as long term capital asset and short term capital asset if held for lesser period .
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Computation of Capital Gain
Section 48 of Income Tax Act,1961 provides the method for computation of Capital Gain
Full value of Consideration received = XXX
Less: Cost of Acquistion= (XXX)
Less: Cost of Improvement = (XXX)
Less: Expenditure incurred = (XXX)
In connection with transfer
Income u/h Capital GainsXXX
While calculating Long Term Capital Gain we take indexed cost of acquisition and index cost of improvement instead of actual cost where
Indexed cost of acquisition means
Cost of Acquisition X Cost Inflation Index for the year in which asset is transferred
Cost Inflation Index for the first year in which asset held by
assesse or for the beginning on 1-4-2001 whichever is later
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Indexed cost of improvement means
Cost of Improvement XCost Inflation Index for the year in which asset is transferred
Cost Inflation Index for the first year in which improvement
to the asset took place
Cost of improvement incurred before 1.4.2001 to be ignored . As per Finance Act,2017 ,base year has been shifted to 1-4-2001 . Cost Inflation Index for Financial Year 2001-02 is 100 while Cost Inflation Index for Financial Year 2019-20 is 289.
In calculating short term capital gain we take actual cost and compute capital gain as per method prescribed u/s 48 of Income Tax Act,1961.
STCG are included in your taxable income and taxed at applicable tax rates basis your slab .LTCG are taxed at 20%
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Special Provisions for Full Value of Consideration in case of Immovable Properties
As per Section 50C of Income Tax Act,1961 if land or building or both are transferred then the sale consideration received should be more than value assessed or assessable by Stamp Valuation Authority on payment of stamp duty . In case sale consideration received or claimed to be received by seller on sale of land or building or both is less than value adopted by stamp valuation authority, such value adopted by SVA would become actual sale consideration received or accruing to the seller. Therefore, capital gain would be Valuation as per stamp valuation authority reduced by cost/indexed cost of acquisition.
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TDS on payment on transfer of immovable property
As per Section 194-IA of Income Tax Act,1961, any purchaser at the time of credit or payment whichever is earlier needs to deduct TDS. A buyer needs to deduct tax at the rate of 1% of sale consideration. No TDS is to be deducted in case of transfer of rural land and where the sale consideration of property is less than Rs.50 lakh.
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Tax Exemptions on Transfer of Immovable Property
There are certain deductions on transfer of property, some of which are listed below:
- Deduction u/s 54 – The deduction u/s 54 is available when the capital gains from property sale are reinvested into buying or constructing maximum two houses, however, the capital gains on the sale of house property must not exceed ₹2 crore in order to claim exemption.
- Deduction u/s 54 F – The deduction u/s 54F is given when capital gains from transfer of long term capital assets other than house property are reinvested to purchase new house
- Deduction u/s 54EC – Section 54EC allows exemption of LTCG on sale of land and building if capital gain amount is invested in certain specified bonds. The bonds should be purchased within 6months from the date of transfer.
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Rest for case specific free legal advice, please contact top best expert Income Tax lawyers in Chandigarh Panchkula Mohali Zirakpur Kharar Derbassi Baltana (Punjab Haryana High Court) & Income Tax Appellate Tribunal.
This post is written by Parul Aggarwal.
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