FEMA & INCOME TAX perspective
By Pranav Damania & Reena Damania
What is Immovable Property
- Any asset attached to earth and is immobile is immovable property which includes Land and building attached to land
- Property includes Residential as well as commercial property
- If there is a plot of land without building then the income from that land would be treated as income from other source.
- Rent of agricultural land is exempt.
Calculation of Income from House Property
- Total annual Actual Rent received or receivable OR Sum for which the property is reasonably expected to be let(Capacity to earn rent is important factor),
- Reduce by property tax (if paid) and 30% standard deduction. Further deduction of interest paid on housing loan is also available.
- NIL value can be taken for upto 2 properties (Self and other which cannot be occupied as assesse reside at rental place at other place due to employement/profession)
- In case of Composite contract, where renting is only one element then the said income will be business income
- In case of joint ownership, income taxable in ratio of ownership determined as per contribution by each owner while purchase of property
Period of holding for capital Gain
- Any immovable property held for more than 24 months is long term capital assets, otherwise it is Short term capital assets
- Long Term Capital Gain (LTCG) taxed at fixed rate of 20 percent whereas short term is taxed at applicable rate.
- In case of gift/inheritance etc., period of holding and purchase price of previous owner to be considered.
Variants of computing Capital Gain
- Sale consideration: Transaction price. In case the stamp duty value is more than transaction value then stamp duty valuation will prevail
- Expenses incurred in connection with transfer: travel expenses for NRI can be claimed apart from brokerage, society charges etc
- Cost of acquisition: option to take purchase price or FMV as on 1st April 2001. FMV shall be less than stamp duty valuation as on 1.4.2001. Valuation report and stamp duty valuation report both required. In case of gift/inherittance, FMV as on date of acquisition by previous owner can be taken in case purchase price not available
- Cost of improvement: Expenses towards addition or alteration can be added as cost of improvement (expenses before 1.4.2001 to be ignored). Renovation, furniture expenses does not qualify as cost of improvement.
Sale consideration In case of under-construction property
- Generally Phase-wise payment which will be spread across more than one year
- Benefit of indexation should be allowed on basis of payment
- Although Mumbai Tribunal held that indexation of entire purchase cost should be allowed from year in which first instalment was paid. This aggressive position can lead to litigation in future.
Income in hand of purchaser
- In case the buyer gets the property for NIL or lesser consideration where difference between stamp duty valuation and purchase price is more than 10% of actual consideration then the difference is treated as income in the hands of buyer taxed under IFOS.
TDS
- Buyer must deduct TDS from the sale amount for a property 50 Lakh & above.
- A. In case of resident seller: TDS rate is 1% of sale consideration. Challan cum return. No TAN is required.
- B. In case of non resident seller: Applicable rate of tax is 20% for long term capital asset and 30% for short term capital asset on ENTIRE VALUE OF CONSIDERATION. Alternatively either buyer or seller can approach tax officer to provide certificate of rate of deduction of tax to be applied as TDS.
- Buyer need to obtain TAN and file TDS return
- In case of rent paid to non-resident, 30% rate
For Non-Resident
- General permission is given to Non-Resident to acquire immovable property other than agricultural land, plantation property or farm house
- They can buy from NRE/FCNR account.
- A non resident can get the proceed of sale of property to his country of residence through normal banking channel. It is subject to maximum 2 properties.
- Where the property was acquired when a NRI was a resident or he/She inherited the property from resident then the remittance of sale proceeds to his/her country of residence will require RBI permission. However they are permitted to remit upto USD 1 million every year.
