New Income Tax amendments related to property transactions

As per the Finance Act, 2012 a new section 54GB has been added in the Income Tax Act which provides relief from re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.  Some of the important conditions to avail this benefit are as under:-

i)    The amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139, for subscription in equity shares in the SME company in which he holds more than 50% share capital or more  than 50% voting rights.

ii)    The amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.

iii)    If the  amount of net consideration subscribed as equity  shares in the SME company is not utilized by the SME Company for the purchase  of plant and machinery before the due date of filing of return by the individual or HUF, the unutilized  amount shall be deposited under a deposit scheme to be prescribed in this behalf.

iv)    Suitable safeguards so as to restrict the transfer of the shares of the company, and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. Further, capital gains would be subject to taxation in case any of the conditions are violated.

v)    The relief would be available in case of any transfer of residential property made on or before 31st March, 2017.

The above mentioned tax benefit is applicable only in respect of long-term Capital Gains arising on sale of a residential property, namely a house or a plot of land.

Taxation of unexplained investments

In case unexplained investment in house property is made on or after 1st April 2012, then as per the new provision contained in section 115BBE income-tax will be chargeable at the rate of 30%.  All tax payers are therefore advised to carefully enter into property transactions in particular and not to make any unexplained investment in the Real Estate Sector, otherwise there will be heavy dose of income-tax.

Tax Deducted at Source on transfer of certain immovable property

As per the Finance Act, 2012 it is provided that every transferee at the time of making payment or crediting any sum by way of consideration of immovable property (other than agricultural land), shall deduct tax at the rate of 1% of such sum if the consideration paid or payable for the transfer of such property exceeds:-

(a)    50 lakh rupees in case such property is situated in the specified urban agglomeration or

(b)    20 lakh rupees in case such property is situated in any other area.

 The specified area for which the limit of Rs. 50 lakh and above is applicable will mean the following areas :-

(i)   Greater Mumbai urban agglomeration

 (ii)  Delhi urban agglomeration

 (iii) Kolkata urban agglomeration

 (iv) Chennai urban agglomeration

 (v)   Hyderabad urban agglomeration

 (vi)  Bangaluru urban agglomeration

 (vii) Ahmedabad urban agglomeration

 (viii) District of Faridabad

 (ix)    District of Gurgaon

 (x)    District of Gautam Budh Nagar

 (xi)    District of Ghaziabad

 (xii)    District of Gandhinagar

 (xiii)    City of Secunderabad

Thus, other than the above areas the new provision relating to tax deduction at source will be where the property value exceeds Rs 20 lakh.  It is also provided that where the consideration paid or payable for the transfer of such property is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty, the value so adopted or assessed or assessable shall be deemed as consideration paid or payable for the transfer of such immovable property.