Tax Column

I, along with my three friends, are jointly purchasing an immovable property of Rs 1.8 crore. All four of us will pay separately the purchase consideration, although the agreement is one. Are we supposed to deduct tax at 1% while making payment of purchase consideration as prescribed under section 194IA of the Income Tax Act? 

Jayesh Dadia 
Chartered Accountant 

You and three of your friends are purchasing one-fourth undivided equal share in an immovable property vide a single sale deed of Rs 1.8 crore. You have also stated that each individual will pay separately his share of purchase consideration. The purchase consideration for each person comes to Rs 45 lakh. Thus, per individual, the purchase consideration is less than Rs 50 lakh. Section 194IA(2) provides that Section 194IA(1) will not be applicable where consideration for transfer of immovable property is less than Rs 50 lakh. Further, Section 194IA(1) is applicable to any person being a transferee. Therefore, the threshold limit of Rs 50 lakh relates to each individual transferees and not with reference to the amount as per the sale deed. In your case, you are four separate transferees and the purchase consideration per transferee is Rs 45 lakh, i.e. less than Rs 50 lakh. You and your friends are separate entities under the law and, therefore, the provisions of section 194IA would not be applicable and you and your friends need not deduct tax at source under section 194IA. 

I am an individual and non-resident in India. For the financial year 2018-19, I have rendered my services outside India, but my salary was received in India where the employer has directly credited to my Indian account. Is the salary taxable since it is received in India? 

It is an admitted fact that you are a non-resident and actually rendered services outside India with a foreign employer. Under section 5 of the Income Tax Act, in case of a non-resident, any income which is accrued or arisen or deemed to accrue or arise in India during such year is taxable in India. The salary was accrued to you outside India as you have rendered services outside India. Further, you have to establish that you were outside India for more than 182 days in the financial year 2018-19 and have actually rendered services outside India. The salary earned or accrued to you depends on the place where you have rendered services. The receipt of salary in India does not make salary taxable in India. Therefore, in my opinion, the salary received by you for the services rendered outside India will not be taxable. However, you have to furnish the employer certificate that you have rendered services outside India and you are non-resident. 

I am an individual and want to transfer certain income as well as assets which fetch income to my wife as she does not have any income and, at the same time, I am having income of more than Rs 10 lakh. Can I transfer some of the assets and income to my wife? Is there any tax consequences? 

Under section 56(2)(x) of the Income Tax Act, you can transfer assets to your wife without any consideration and there will be no tax implications in the hands of your wife. Hence, you can transfer your assets to your wife without any consideration. However, if you transfer assets or income from any assets to your wife, then clubbing provisions specified under section 64 of the Income Tax Act will apply. In this situation, income arising from such assets, although received by your wife, will be taxed in your hands in view of clubbing provisions. For example,if you invest Rs 2 lakh in fixed deposit in the name of your wife, the interest earned from such FD shall be clubbed with your income. Therefore, your intention to reduce tax liability in your hands will not be met. 

However, if you transfer the assets for an adequate or full consideration, then the provision of clubbing of income does not apply and the entire income shall be taxed in the hands of your wife. 

I am a lady and lost my mother last month. I have inherited a residential flat from my mother. The said flat was purchased in 1980. I desire to sell this flat as I am in need of some financial liquidity. The flat would fetch Rs 5 crore. Can you explain to me what would be the tax implications in my hand? Whether it would be short term or long term capital gain and am I entitled to any other deduction? 

You have acquired the residential flat under a will. Therefore, the cost of the flat and the period of holding of the flat would be computed with reference to the year in which your mother has acquired the flat and the cost of the flat to her. Since your mother has acquired the flat in 1980, and after inheritance, you propose to sell the flat in the current financial year,then the residential flat is a long term asset in your hand. Further, the residential flat was acquired prior to April 1, 2001. Therefore, the fair market value of the residential flat as on April 1, 2001, would be the cost of the flat. For example, if the fair market value of the residential flat as on April 1, 2001 is computed as Rs 50 lakh, then the cost of the residential flat is Rs 50 lakh. Further, as the residential flat is a long term asset, you will be entitled to claim indexed cost. For example, if the indexed cost is three times, then your indexed cost would be Rs 1.5 crore. Therefore, your net capital gain on sale of residential flat would be Rs 3.5 crore (sale price – indexed cost). You are liable to pay 20% long term capital gain, which comes to Rs 70 lakh. 

However, if you reinvest the entire Rs 3.5 crore in an another residential flat, then the whole capital gain would be exempt under section 54 of the Income Tax Act. You can also invest Rs 50 lakh under capital exemption bond for a lock-in period of 5 years. Thus, you have various options and incentives and exemption under the Income Tax Act.