As there was lot of expectations from this budget, that budget might be investors or common men friendly. However in reality it does not seems like that. If we talk about real estate and union budget 2013, there was two sided impact on it. I.e. DIRECT TAX and INDIRECT TAX.
One by one we take a look on both the aspects. First we take Indirect Tax
Service Tax (Applicable from April 01, 2013)
| Service Tax on 25 % of the value of transaction. | Service tax on 30% of the value of transaction. |
| Conditions:-
1. Residential property having carpet area of less than or equal to 2000 sq ft. and 2. Value shall be less than Rs 1 Crore. |
Conditions :- 1. Residential property having carpet area more than 2000 sq ft or 2. Value of that home or flat is more than Rs 1 Crore. |
However incase of commercial properties service tax is levy able on 30% of the value of transaction.
Question: What should be termed as value for that purpose of charging service tax? The amount actually paid by customer or the stamp duty valuation?
Answer: Value here means the amount actually charged to the customer as consideration against the property.
Direct Tax
TDS on the value of property – (Old wine in new bottle) – Applicable from June 01, 2013
In union budget 2012 also, our honorable finance minister introduced the provision of deducting 1% TDS on the value of property. However later on, that provision was withdrawn due to its complexity in mechanism.
TDS at the rate of 1% shall be charged on the value of transfer of immovable property where the consideration exceeds Rs 50 lakh. However, agricultural land will be exempt.
After reading that some more questions regarding the complexity was aroused. Like –
1. Whether every person (Person as per the definition of Income Tax Act) including Individual is covered in this provision. The answer is YES, as no exception was provided for Individuals under this provision.
2. If the value of property exceeds Rs 50 lakh (say Rs 55 lakh), however the consideration is less than 50 lakh (say Rs 45 lakh), whether this provision will be applicable? Still debatable. Majority views are No. However TDS will be charged if the value of consideration (value of transfer) exceeds Rs 50 lakh.
3. What will be the frequency of deduction and payment of TDS? The answer is, TDS will be deducted as and when payment made by buyer to seller.
4. In case of property finance by any financial institution or bank, and disbursement was directly made by bank to seller. Whether TDS will be deducted by the bank or by buyer. The answer is TDS will be paid by the buyer, as the bank was merely acting as an agent on behalf of buyer.
This scheme has been introduced to curb the black money involved in real estate transaction. However I think this might give another chance to the buyer and seller to generate black money. How??
If the value of property was understated as compared to market value (Market value is usually higher than stamp duty value). Buyer will save Service Tax on 5% (30% – 25%) of the value of transaction and seller get money without TDS on 1%.
So, for example on every Rs 1,000/-, seller evade tax of Rs 10/- on grounds of TDS and buyer evade tax of Rs 6.18/- on grounds of service tax. Government should rethink and give more clarification on this ground.
Additional Deduction of Rs 1 Lakh u/s 80EE:
Additional deduction of Rs 1 lakh of interest amount has been proposed to person taking a loan for his first home from a bank or a housing finance corporation up to Rs 25 lakh during the period 1.4.2013 to 31.3.2014. However the value of property does not exceed Rs 40 Lakh.
Question: Whether the deduction on account of interest expense has been enhanced from Rs 1.5 lakh to Rs 2.5 lakh?
Answer: No, the limit of deduction of interest of Rs 1.5 lakh under the head house property has not been enhanced; however a new deduction under sec 80EE has been introduced.
Question: In FY 2013-14 my total interest is Rs 2.10 lakh and in FY 14-15 it will be Rs 1.90 lakh, whether I can claim the deduction of additional Rs 1 Lakh in two different financial year?
Answer: Yes, we can. However the total limit of additional deduction does not exceeds Rs 1 lakh in totality.
Question: I am buying a property for a consideration of Rs 35 lakh and borrowing Rs 24 lakh from SBI. However the stamp duty valuation of that property is Rs 45 lakh. Whether I am eligible for the benefit of Sec 80 EE
Answer: No, as per the wording of the provisions, The VALUE of the property does not exceed Rs 40 Lakh.
Question: I had brought one home in 2009 and now want to buy another home from the sale proceeds of the previous home and partially financed by SBI loan. Say loan amount is Rs 21 Lakh. As currently I am not holding any house property. Whether I can avail the benefit of Sec 80 EE?
Answer: Actually answers were expecting from you all.
I had tried to do justice with the aforesaid writing, as there might be some mistakes in my understanding and writing, Please feel free to write and notify me on that grounds for my future learning.
The above mentioned article or details are my personnel views and understanding, please consult appropriate consultant or senior before taking any decision. In any of the case or in what so ever manner, I will not be responsible for your or any act / incidence.
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Sonu Bhojwani.
Email : [email protected]
@Vivek: From June 01, 2013. Also mentioned in article, Subject to consent of president.
@Anand: Service tax is not directly applicable to all individuals. Person engage in construction of residential buildings having more than 12 residentional units. (i am sharing only layman meaning – refer act for exact wording), and units are in construction stage at the time of sale. Incase of resale property or fully constructed property ST not Applicable.
However buyer needs to deduct TDS in case of consideration is more than 50 Lakh.
@Vikas: i appreciate your proof reading, thanks a ton. Even the same doubt was in my mind, if i put “or” instead of “and”, than the condition will be…
If property’s area is less than 2000 sqft and value more than 1 crore, thanST will be charged @ 12.36 x 25%, which become contradictory with the condiion of 30% chart also.
Thanks to all for showing interest in article.
Nice article Sir, Found very informative! Thanks for sharing!
SIR ,
FROM WHEN 1% TDS PROVISION ON IMMOVABLE PROPERTY IS APPLICABLE
Assessee can bought another home by selling other home provided conditions laid down u/s 80EE(3) are fulfilled.
i have a question about TDS /service tax on sale of property: In case of an individual selling property, he is liable to charge service tax and deposit the same with the authorities. similarly the buyer is required to deduct TDS and deposit in the appropriate account.will it be necessary for such individual seller to register with the service tax authorities and obtain unique service tax registration number which is mandatory for filing service tax returns?also pls clarify if TIN/TAN numbers are to be obtained by the INDIVIDUAL BUYER & SELLER ? Thanks
The condition mentioned in the abatement under SErvice Tax seems incorrect.
The condition shall include the term “or” instead of the term “and” for being taxed @25%.