Last week, we examined certain aspects related to housing loans and interest thereon. This week we discuss certain regulatory matters related to property ownership including stamp duty, service tax and TDS.
First up, the service tax. Where an immovable property is transferred, a sale deed known as conveyance has to be made and registered. This attracts stamp duty which differs from State to State. In Maharashtra, while stamp duty is 5% of the value, registration charges are 1%, value added tax another 1% and in addition there is service tax.
CBDT has issued new norms that restrict lower service tax to only those houses that cost below Rs 1 crore and have less than 2,000 square feet carpet area. Service tax @ 3% is applicable on properties that meet these conditions.
If a housing unit is either more than 2,000 square feet carpet area or costs over Rs 1 crore then the service tax is @ 3.6%. Commercial properties will continue to attract higher incidence of tax, irrespective of size and value. Unfortunately, what constituted carpet area is not defined and is bound to cause controversy.
Stamp Duty Valuation: Sec. 50C
U/s 50C, when a ‘capital asset’ is transferred for a consideration which is less than its stamp duty value, then such value is taken as full value of consideration for computing tax on capital gains.
To negate several judicial decisions which held that immovable property held as stock-in-trade is not a capital asset, Finance Act (FA) 2013 has inserted Sec. 43CA mandating the stamp duty value of stock-in-trade on its transfer to be taken as its deemed value of consideration for computing income under the head ‘Profits and gains of business or profession’. This forces builders who also have also to pay VAT, to jack up their prices which are already skyhigh.
Sec. 55A gives a right to the Assessing Officer to refer to a Stamp Valuation Authority (SVA) if he feels that value of the asset as claimed by the assessee (even if it is in conformity with the stamp office valuation), is less than its market value as on the date of its purchase or as on 1.4.81 wherever necessary.
In spite of the ruling by SC that a registered sale deed is the only legal tool for property transactions, many land or house transactions continue to take place circumventing cost of registration by using ‘Agreement to Sell’ or ‘Power of Attorney’. FA09 has plugged this loss of revenue by amending Sec. 50C for computing tax on capital gains as well as on gifts requiring taking the stamp duty valuation in such cases.
Will the purchaser be allowed to take this fictitious higher cost as his cost of acquisition for paying tax on LTCG when he sells this house in future? We wonder.
As per the Maharashtra Ownership Flats (Amended) Rules, it is the duty of the developer to get the flat registered u/s 32 of the Indian Registration Act, if he has received more than 20% of the sale price from the buyer. The recent FA16 has inserted the following provision in Sec. 50C—
“Where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration if and only if the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system.”
Relaxing Requirement of Obtaining TAN
U/s 203A, every person deducting or collecting tax is required to obtain Tax Deduction and Collection Account Number (TAN). However, at present, to reduce the compliance burden for reporting of tax deducted from payment over Rs 50 lakh made for acquisition of immovable property (other than rural agricultural land) from a Resident transferor u/s 194-IA, the deductor is allowed to quote his PAN in place of TAN.
Next week we shall examine some taxation related aspects with respect to real estate ownership.
(The authors may be contacted at [email protected])