Will transfer between husband and wife be exempt from tax?

S. C. Vasudeva   

Q. An individual got a plot allotted in his name from HUDA in Haryana in F.Y 1991-92 at the allotment cost of Rs1,75,000. The price was duly paid in full in instalments each year till F.Y 1998-99 and the possession was handed over in F.Y 2000-01. In F.Y 2009-10, this individual transferred the said plot via family transfer permission under HUDA and the said plot was re-allotted in his wife's name. A conveyance deed in this regard was registered at transfer value of Rs2,01,000 and Rs6,000 were paid as registration fees. However, in actual, no consideration was paid for the above transfer and now the wife wants to sell this plot. Kindly advise whether this transfer between husband and wife be termed as exempt transfer (gift of immovable property) u/s 56(2)(vii) ?

a) Whether, wife can claim cost of indexation as per Section 49(1) and period of holding as per Section 2(42A) of the said plot of land?

b) Whether, clubbing provisions will apply in above case of transfer of land for inadequate consideration?

— Gautam Thakur

A. Your queries are replied hereunder:

a) A transfer between husband and wife shall not attract the provisions of Section 56(2)(vii) of Income Tax Act 1961 (The Act) as clause (A) of the definition of the term 'relative' includes spouse of the individual.

b) The wife should be able to claim the indexation benefit from 2000-01in view of the decision of Delhi High Court in the case of Arun Shungloo Trust vs. CIT (2012) 205 Taxman 456 and Bombay High Court decision in CIT vs. Manjula J. Shah (2012) 204 Taxman 691.

c) The clubbing provisions would apply as provided under Section 64 of the Act and the income from capital gain would be taxable in the hands of the husband as the source for the cost of the plot has originated from the husband.

Tax rebate on loan for renovation

Q. I have taken a loan from bank for renovation and repair of my house amounting to Rs4 lakh. Can I avail tax rebate in respect of the repayment of loan as well as the interest on such loan?

— Raj Gupta

A. The benefit of deduction under Section 80C of the Act is allowable within the overall limit of Rs1.5 lakh in case an assessee has borrowed money from specified sources for purchase or construction of a residential house, the income from which is chargeable to tax under head "income from house property" (or which would if it had not been used for the assessee's own resident, have been chargeable to tax under that head) and where payments are made towards or by way of repayment of the amount so borrowed by the assessee. The specified sources include a bank and a cooperative bank. The benefit of deduction under Section 80C of the Act is, therefore, not available for repayment of loan taken for renovation and repair of the house. However, you would be entitled to a deduction of interest paid on the amount so borrowed against the income from house property. It may be added that such deductible amount is limited to a sum of Rs 30,000 in case of a self occupied property.

Can my son get benefit under Section 80 C?

Q.Kindly guide me on the following points:

(i) My son and I have purchased an under-construction house in Greater Noida by paying lump sum amount by taking a loan in February, 2012. The possession will be given before 31.12.2016. My son is paying the monthly instalments, including principal and interest w.e.f. March, 2012. I want to know whether my son can get the benefit of principal under Section 80-C for the financial year 2011-12 onwards. Conflicting views have been expressed in newspapers in this respect.

(ii) My wife has purchased a flat in New Delhi through Power of Attorney ‘with consideration’, which is duly registered with the competent authority. The sale agreement is also in her name. But I have paid the entire amount. She had given the flat on rent on 1.4.2015. My question is whether the rent amount received by my wife, who is also income tax assessee is her income or my income because I have paid the amount.

a Who should pay income tax - my wife or I.

b) Who will be considered the owner of the property?

Please quote the relevant sections.

— Balvinder Singh

A. Your queries are replied hereunder:

a) A strict interpretation of the provisions of Section 80C of the Act gives an indication that deduction for the repayment of principle amount should be allowed when the house is complete. However, the aforesaid Section contains a clause for allowing deduction in respect of any instalment or part payment due under self-financing or other scheme of any development authority engaged with construction and sale of house property on ownership basis. In case the instalments paid can be covered under the said clause, you may be able to get the deduction for the instalments paid towards the cost of the house.

b) The income from house property bought in the name of your wife would be taxable in your hands as you will be considered the real owner of the property as the funds for the purchase of the house have been provided by you. This is in view of the provisions of Section 64 of the Act.

Will I get a chance to clarify?

Q. I had sold my house in Noida in 2012. My tax advisor was not aware of the implications of Section 50C. The buyer who paid stamp duty never informed me of substantially high value assumed by stamp authorities Rs85 lakh against Rs55 lakh in sale agreement.

Income tax officer also did not issue notice to me before raising demand for additional tax. I appealed against this but so far no decision has been intimated to me. However, I understand that the Commissioner has asked for valuation of property a few months’ back. I have not received any notice/communication from valuation officer so far. I am a senior citizen now living in Dubai.

My questions are:

1. Can Valuation Officer as well as Commissioner give final decision without giving me any opportunity to contest?

2. Should I write to Commissioner to provide the opportunity before taking any decision.

— Navneet Gupta

A. Your queries are replied hereunder:

(i) The Valuation Officer as well as Commissioner of Income-tax (Appeals) have to give you an opportunity of being heard.

(ii) Normally the valuation department makes out a draft valuation report and sends the same to the taxpayer so that the assessee can raise his objections in case he does not agree with the draft report. The report is finalised after taking into account the objections, if any are raised by the tax payer.

(iii) You may, if so desired, write to the Commissioner of Income Tax (Appeals). But as stated above the Commissioner is required to give an opportunity to the appellant of being heard in connection with the matter which has been contested in an appeal.

Will buying plot from capital gain reduce tax liability?

Q. Suppose a man sells his property (residential house + land) for an overall amount (entire) of "B1" during May 2015 and purchase a residential (PUDA approved) plot for an amount B2. If B1 - B2 is nil, then there is no liability of tax. If B2 is less than B1, then what should be done.

B1-B2 is a very small amount comparable and has to be spent on the above mentioned plot as soon as the extra amount for corner or preferential site is determined and intimated by PUDA. The entire cost of the plot has been made in full, except preferential cost 5 to 10 per cent extra.

My queries are:

a) In whicg account this amount B1-B2, is to be deposited to save tax, which is to be paid in future for the plot?

b) What is the time limit for spending the amount B1-B2 so deposited?

c) How is the tax calculated on unused amount, if any after all?

— Vikas Jain

A. At the outset let me point out that your presumption that the amount of capital gain would not be exigible to tax if a residential plot is purchased by utilising the entire sale consideration accruing on the sale of a residential house is not correct. An exemption from taxability is allowable in case the capital gain arising on the sale of residential house is utilised towards the purchase or construction of a residential house within the specified period. Further such exemption is allowable in case the capital asset i.e. residential house has been held for a period of three years and is sold after the said period of three years. Your queries are replied hereunder after taking into consideration the above provisions of the Act.

a) There is no question of deduction of amount realised on sale of residential house (B1) from the amount incurred towards the cost of plot (B2). Instead gain arising on the sale of residential house would be taxable @20 per cent plus education cess of 3 per cent thereon, if the plot has not been purchased with the intention of construction of a residential house within a period of three years after the sale of residential house.

b) As pointed out in (a) above, if the plot has been purchased with the intention of constructing a residential house the amount of capital gain has to be utilised within three years as aforesaid. If the amount is not so utilised fully or partly before the date of filing tax return for the financial year in which the capital gain arose, the remaining amount is required to be deposited with bank under capital gain scheme.

c) There is no question of any unused amount. Both the transactions have to be treated separately in case there is no intention of constructing a residential house within the specified period and the amount of capital gain would be taxable as stated in (a) above.