Lower tax on property via revised declaration

Those who have undeclared immovable property can now revise it under the Income Declaration Scheme ( IDS). Last week, the Central Board of Direct Taxes ( CBDT) clarified this amendment in the latest round of Frequently Asked Questions ( FAQs) on the scheme.

According to the earlier rule, if you declared property under in the IDS, the value would be as on June 1, 2016. But now that it has been amended, there is an option that if you have the title deed of the property, the value might be declared on the stamp duty paid and re- adjusted according to the cost inflation index of that year minus the cost inflation index of 2016. In case the property was acquired before 1981, you can get market value as done on April 1, 1981 and adjust it with the cost inflation index of 2016- 17. “ One impact of the recent amendment is that people need not to go a registered valuer to get valuation done, as the stamp duty value can be considered based on the title deed of the property, if available,” says Kuldip Kumar, Partner and Leader Personal Tax PwC.

The apex tax department has also clarified that if you have already declared property under the IDS and wish to revise it at a reduced value, it is possible. Earlier, revised declaration at a lower value was not allowed. “ The CBDT has not talked about refund. But, if they are allowing a lower declaration, then they may probably allow a refund,” says Kumar.

Those declaring assets under the IDS have to pay 45 per cent of the asset’s value as tax plus penalty. The amendment means that when you sell a property declared under the IDS, the holding period would now be calculated from the date when you acquired the property, and not June 1, 2016, as was the case earlier. So, depending on the whether the holding period is three years or longer, you will be subject to either long- term capital gains tax or short- term capital gains. Long- term capital gains tax is 20 per cent without indexation, while short- term capital gains tax is as per slab rate, which could go up to 30 per cent. But, for property declared under the IDS, indexation benefit is not available for the entire holding period, but only from June 1, 2016 onwards.

“But since the tax- payer is already taking into account cost inflation index, while declaring the property value, it is kind of getting indexation benefit,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates.

Another advantage of amending the date of property valuation is that tax payers can get the benefit of further investment under Section 54 or 54 F, in case of long- term capital gains, he adds. The last date for taking benefit under the IDS is September 30, 2016. Once the window comes to an end, normal tax rates would apply. But, the bigger fear is that you are opening yourself for prosecution, which could be severe, say experts. Tax payers who have had high- value transactions but did not file the returns have started receiving notices asking them to declare it under the IDS. Earlier, they would have received a notice under Section 148 of the Income- Tax Act.

Business Standard New Delhi,24th August 2016