Are stamp duty and registration charges included in the cost of house?

S. C. Vasudeva

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Q.My wife and I are planning to take a home loan jointly to purchase a flat. Kindly advise me if the stamp duty and registration charges are included in the cost of the house. Is IT benefit on stamp duty etc. includible in loan repayment for which a deduction is allowable. What is the best way to give EMIs to bank to get IT benefit for both of us. Both of us are salaried employees.— Rakesh Gupta

A.Replies to your queries are as under:

• The expenditure incurred on the stamp duty and registration charges forms part of the cost of the house. In case, however, a deduction is claimed under Section 80C of the Act in respect thereof, it may not be possible to get a double deduction.
• Section 80C of the Act provides for the deduction of amount paid towards repayment of any loan borrowed from the bank/financial institutions/public company/co-operative society engaged in the business of providing finance for the construction of houses. The maximum limit of such deduction is Rs 1.50 lakh including all other payments/deposits specified in the aforesaid Section. 
• Stamp duty and the registration fee and other expenses incurred for the purposes of transfer of the house property are also covered for the purposes of aforesaid deduction. 
• The deduction can be claimed by both you and your wife in case the house is owned jointly, the amount is borrowed by both of you, and the repayments towards the loan so obtained are also made separately by each one of you. I may add that it will be better to get the EMIs fixed separately for each one of you so as to avoid any problem in this regard.  

What are the best options to save tax?

Q.I have purchased 260 sq yd. plot in a few years back (through loan on my wife’s name) and have raised construction worth Rs 40 lakh thereon. The construction went on till October, 2014. I have just sold the house for Rs 80 lakh. Kindly clarify:

• What are my tax liabilities?
• If I get 50 per cent by cheque and 50 per cent by cash, do I need to pay tax on the amount 50 per cent received by cheque after depositing it in my account?
• My wife was a government employee and retired a few years back. Assuming that my salary is enough for our livelihood. Can I show my wife’s salary (all the amount that she received after her retirement) for raising the construction of the house?  

4. What are the best options to save the tax in this case? — Ravinder Bhalla

A.Your queries are replied hereunder: 

• The capital gain arising on sale of the house would be a short-term capital gain and would be includible as part of your total income for the purpose of taxability. 
• It would not be advisable to receive part consideration in cash. 
• The capital gain would be taxable in the hands of the person who is the owner of the house. The method suggested by you for showing the incurrence of cost of construction by your wife may not be possible as the source of construction has to be clearly identified. 
• There seem to be no legal options to save tax in the present case. 

Avoid unaccounted payment

Q.My brother bought one residential plot in Gurgaon in 2003 from HUDA in installments for approximately Rs 6,70,000. The last payment was paid by him in February 2006 and the possession also taken in October 2006. As my brother expired two years back, my sister-in-law wants to sell that plot and its market value at present is approximately Rs 2 crore. However, none of the buyers is willing to give the whole amount in white. The amount being offered is in the ratio of 50:50 ( My queries are:

• If she wants to keep the full amount with her for the education of her two daughters and their marriages.  How much income-tax will she have to pay?
• Can she purchase a commercial property with that amount?
• The most important point is how to tell the income-tax department that she has received black money as she does not want to hide anything from the IT department. The buyer will never agree that he has paid any black money. — J.M. Gupta

A.Your queries are replied hereunder:

n On the basis of the cost inflation index notified for financial year 2014-15, the indexed cost of the plot would work out at Rs 13,21,927. Taking into account the sale price of Rs 2 crore the amount of long-term capital gain would work out at Rs 1,86,78,073. The cost inflation index for financial year 2015-16 has not been notified as yet and therefore, the above computations are based on the cost inflation index for the financial year 2014-15. The amount of indexed cost would increase if the cost inflation index for 2015-16 is considered and accordingly the amount of long-term capital gain would also be lesser as compared to the figure mentioned hereinabove. The amount of tax payable on the amount of long-term capital gain as computed above, which is payable @20.6% (20% plus education cess of 3% thereon) would be Rs 38,47,683.

• Tax on the amount of long-term capital gain cannot be saved in case the amount of net consideration is utilised for the purchase of a commercial property. Net consideration for this purpose means the amount of sale consideration less expenditure incurred wholly and exclusively in connection with the sale.
• Your sister-in-law must wait for a buyer who is prepared to pay the entire amount of sale price by cheque. She should not enter into any transaction of the nature described in the query. Any transaction of the nature referred to in your query is not permissible under the provisions of the Act.

Does a double-storeyed house qualify as one house?

Q. I have a lot of confusion about the meaning of one house. I have a double-storeyed building having two 1200 sq ft floors on one plot. I am a bank employee and I show it self-occupied as one house in my income tax return due to my service at Palampur (HP). Is it correct or it should be counted as two houses.   — S.K Naik

A.The issue with regard to one house is required to be considered where long-term capital gain arising on the sale of a residential house is utilised for the purchase or construction of another residential house so as to save the amount of tax leviable on the amount of long term-capital gain. The issue of one house is also relevant for the purposes of seeking exemption under Wealth Tax Act, 1957 from the leviablity of Wealth Tax on the net wealth of an assessee. Even if you have a double storey house but the same is not let out and is self-occupied, you can seek the relief allowable under the provisions of Income Tax Act, 1961 (The Act) as to the taxability of income from such house. 

The relevant Section provides that where the property consists of a house or part of a house which is in the occupation of the owner for the purposes of own house or cannot actually be occupied by the owner by reasons of the fact that owing to his employment, business or profession carried on at any other place, he is to reside at that place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be Nil. 

The exemption allowable under Wealth Tax Act in respect of one house should be construed as that house which is not let out, in view of the fact that a property which is let out for 300 days in a year, is in any case exempt from the levy of wealth tax.  

Legal heirs of unmarried woman

Q.My father’s sister who was unmarried died intestate recently. Both her parents are no more. Only two of her brothers are surviving. Please clarify as to who will be the legal heirs. Are only the living brothers the legal heirs or children of the predeceased brothers/sisters will be entitled to become legal heirs as per Hindu Succession Act. 

— S.K. Singh

A.General rules of succession as per the Hindu Succession Act 1956 applicable in case of a female Hindu who has died intestate are specified in Section 15 and 16 of the said Act. The property devolves firstly upon the sons and daughters (including children of any predeceased son or daughter) and the husband. Since your father's sister was unmarried, rule laid down in Section 15(1)(d) of the aforesaid Act, would apply and property would be inherited by the heirs of the father i.e. her two brothers simultaneously. This rule would apply even if the property was inherited by your father’s sister from her father or mother.