Jayesh Dadia, Chartered Accountant
In the latest Olympic Games India’s performance was at an all-time best. The performance of the entire Indian contingent was appreciated, including words of praise by Prime Minister Narendra Modi. I read in the newspapers that the central government, state governments, sponsors, corporates and associations have given prize money to medal winners as well as other players. I would like to know whether such financial awards are taxable under the Income Tax Act or exempted?
Any reward, whether in cash or kind, received by a medal winner from the central government or state governments is totally exempt and accordingly not taxable. By an order dated January 28, 2014, the central government has exempted any reward whether in cash or kind received by the medal winners of the Olympic Games, Commonwealth Games or the Asian Games from the central government or state government. However, if the medal winner receives any award or reward from a sponsor or a corporate then the same is taxable except an award received from any association or institution approved under Section 12AA of the Income Tax Act. Any award or reward received by a non-winner i.e. only a participant of the above mentioned games is taxable under Section 56(2)(x) of the Income Tax Act unless the reward is received from a trust, institution or association approved under Section 12AA or 12AB of the Income Tax Act.
I have received bonus shares from listed companies. Would these be taxable under Section 56(2)(x) of the Income Tax Act ?
Allotment of bonus shares is not taxable as income from other sources under Section 56(2)(x) of the Income Tax Act. This is because when a company allots bonus shares it does not result in any change in the capital structure of the company. Also, when the shareholder receives bonus shares the value of the original shares that it holds reduces pro-rata. Therefore, allotment of bonus shares is not without consideration and accordingly outside the purview of Section 56(2)(x) of the Income Tax Act.
I have signed an agreement fixing a purchase consideration of Rs 3 crore for a residential house on April 1, 2017 and accordingly paid the booking amount. The builder has issued an allotment letter which is duly signed by me and the builder. The allotment letter contains all the terms and conditions. As per the allotment letter, purchase consideration was Rs 3 crore. The final agreement was registered for the purpose of stamp duty on March 30, 2021. The stamp duty valuation as on March 30, 2021 was Rs 4 crore. I was told that the difference of Rs 1crore may be taxed in my hands under Section 56(2)(x) of the Income Tax Act. Kindly clarify.
Proviso to Section 56(2)(x) of the Income Tax Act clearly states that if the date of the agreement fixing the purchase consideration and the date of the final registered agreement are different, then the stamp duty value is to be considered as on the date of agreement fixing the sale consideration. In your case, the initial agreement fixing the sale consideration in the form of an allotment letter is April 1, 2017. Therefore, the stamp duty value as on that date is relevant and if on that date the stamp duty value is not more than 10 per cent of Rs 3 crore, no addition would be made under Section 56(2)(x) of the Income Tax Act. Kindly ensure that in the final agreement the above facts of the initial agreement and allotment letter are captured so that the officer cannot dispute the fact. There are several tribunal and high court judgments holding the above proposition.
I am an individual and own a 1 acre plot. A reputed builder has approached me for development of this plot jointly. He will develop the land and construct residential area of 2 lakh sq. feet out of which he will retain 40 per cent and hand over the balance to me. He will also pay monetary consideration of Rs 2 crore. Can you explain what the tax implications would be and when I would have to pay capital gain tax and how to calculate the amount of capital gain?
Since you are an individual, provisions of Section 45(5A) of the Income Tax Act are applicable which have been inserted with effect from the financial year 2017-18. Under this provision, if an assessee being individual enters into a specified agreement for the development of a project then capital gain would be chargeable to Income Tax as income of the previous year in which certificate of completion for the whole or part of the project is issued by a competent authority. Thus, if you enter into a specific agreement in the financial year 2021-22 and the certificate of completion of the whole project is issued by the competent authority in the financial year 2025-26, then the capital gain tax will be levied in the financial year 2026-27 relevant to assessment year 2027-28. Therefore, there is no immediate tax implication.
It is further provided in the above mentioned provision that the stamp duty value of your share, being land or building or both in the project, on the date of issue of certificate of completion, as increased by any monetary consideration received, shall be deemed to be the full value of consideration received or accrued as a result of transfer of the asset. Thus, for example, if the stamp duty value of the land is Rs 5 crore, then your sale consideration would be Rs 8 crore, including Rs 3 crore monetary consideration. Since the land has been owned by you for more than three years, capital gain would be considered as long-term capital gain. Further, if the land is owned by you prior to April 1, 2001, then the fair market value of land as on that date as increased by indexation would be considered the cost of the land which you will get deduction from the sale consideration on completion of the project.