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How Buying Property After 1st October 2009 May Make You Liable to Tax ?

October 3, 2009 By taxworry Leave a Comment

1st October is a black day for individual and common man as far as taxation law is considered. In its attempt to stop black money , Finance Act 2009 brought in drastic amendment in section 56(2)(vii) by which two class of tax payers are affected : Individual & Huf.

The said provision is section 56(2)(vii)(b)(ii) which is as under:


56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources, namely :

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,

(a) …………….

(b) any immovable property,

(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consi-deration;

(c) ………..

The aforesaid provision in simple terms says if you (an individual or HUF ) receives any Immovable property from any body except following persons

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.

for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, then difference in Stamp Duty value and consideration shall be considered as income.


How does the aforesaid provision harm honest taxpayer?

Supoose , you buy a property from a developer by paying full amount in cheque. Let us say , in your case , there is no payment of cash (It is common knowledge that in many reatly case , cash payment is a must and that is the reason this provision has been brought in the Act), . When you file the papers with Registrar of conveyance , and he values your property higher than what was actally paid, you will have to pay tax on the difference in the two values.

Now this is unfair , because if the purpose was to check the system of black money in realty sector, it fails and only harms small individual investors.

Rediculous situation arises that Company or other person who are not either indivdiuals or HUF shall not be told to pay the tax on the difference even when they purchase flats or property at the same building or complex since they are kept out of provision u/s 56(2)

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