TDS on Sale of Certain Immovable Property

TDS on Sale of Immovable Property

The Indian finance minister Mr. P Chidambram has introduced a new section 194IA in Income Tax Act 1961 which is applicable w.e.f 1^st of June, 2013. Section 194IA dealt with TDS on transfer of certain immovable property other than agricultural land.
As per section 194IA “any person, being a transferee responsible for paying any sum to a resident transferor by way of consideration for transfer of immovable property (other than agricultural land), shall deduct TDS at the time of credit of such amount to the account or at time of payment through cash, cheque, DD or any other mode, equal to the 1% of such sum as income tax thereon.”

Here few vital features are given as follows:

  1.   No TDS shall be made, where the consideration for the transfer of an immovable property is less than Rs 50 lacs.

  2.   As per this section TDS will be applicable if consideration of an immovable property exceeds Rs 50 lacs, means multiple buyers or multiple sellers will not make difference even if their individual share in consideration doesn’t exceed Rs 50 lacs.

  3.   Transferor shall be resident of India for TDS under this section.

  4.   Immovable property means any land (other than agricultural Land) or building or any part of land or building.

  5.   Immovable property could be commercial or residential.

  6.   Payment made through book entries shall also be covered under the term “any other mode of payment”

  7.   In case of exchange of immovable assets both seller and buyer will be liable for TDS on each other.

  8.   Transfer of immovable asset on account of Gift will not be covered under this section because gift is transfer without consideration.

  9.   If case of property financed through loan from any bank or any financial institution then in that case a written instruction shall be furnished to bank or institution to remit amount to seller after deducting TDS on the total payment made and deposit Tax amount to government directly.

 10.   Both Seller and buyer shall have PAN for filing TDS challan form 26QB because name field will be prefilled after filling PAN in given field, TDS challan can’t be filled until both parties PAN is available.

 11.   Buyer need not to obtain TAN for TDS on consideration, although PAN is mandatory.

 12.   If buyer fails to deduct TDS he will have to pay interest and penalty as per the provision of the act. In case if seller has paid tax then buyer is liable to pay penalty and interest on delayed period only.

 13.   TDS shall be deposited up to 7^th day of next month in which amount has been credited or payment made whichever is earlier.

 14.   Buyer has to give TDS Certificate with in 15 days in form 16B.

Reverse Mortgage as per section 47(xvi) of IT Act, 1961

Senior Citizens are an increasing component of the Indian Society and depen­dency in old age is increasing in the country. While on the one hand, there is significant increase in longevity and low mortality, on the other hand, cost of good health care facilities is spiraling and there is little social security. Senior citizens need a regular cash flow stream for supplementing pension to her income and addressing their financial needs. Spectacular increase in residential house prices has created considerable “home equity” wealth. For most Senior citi­zens, the house is the largest component of their wealth. Reverse mortgage scheme has proved itself as a boon for senior citizen who do not have a regular income of sources or who do not have children to take care of them in their old age; reverse mortgage has also given a self dependence to them.

Reverse mortgage introduced by Budget 2007, and in Budget 2008-09 has pro­posed to amends the income tax act to clarify tax exemption on reverse mortgage loans. Earlier, the Transfer of Property Act considered any mortgage as a transfer. The IT Act however, had a different definition for transfer. The amendments have been made to the sec­tion 10 of the IT act. The ministry has introduced a new clause 10(a) in section 47 that says a reverse mortgage will not amount to a transfer.

Reverse Mortgage: Meaning

Reverse mortgage is aptly named because payment stream is “reversed”. Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the borrower. The concept is simple, a senior citizen who holds a house or property, but lacks a regular source of income can put mortgage his property with a bank or housing finance company (HFC) or “annuity sourcing institution” (means Life Insurance Corporation of India or any other insurer registered with the Insurance Regulatory and Development Authority inserted by notification no 79/2013 on 7th Oct.2013) and the institution pays the person a regular payment. The good thing is that the person who ‘reverse mortgages' his property can stay in the house for his life and continue to receive the much needed regular payments. So, effectively the property now pays for the owner. So, effectively you continue to stay at the same place and also get paid for it.

 The whole idea is entirely opposite to the regular mortgage process where a person pays the bank for a mortgaged property. Hence it is called reverse mortgage. This concept is particularly popular in the western countries. The draft guidelines of reverse mortgage have the following salient features:

   1. Any house owner over 60 years of age is eligible for a reverse   mortgage.

   2. The maximum loan amount may vary from 60% to 90% of the value of residential property depend on the bank policy.

   3. Disbursement of loan. - The approved lending institution may disburse the loan, -

 (a) to the reverse mortgagor by any one or more of the following modes, namely:-

(i) periodic payments to be decided mutually between the approved lending institution and the reverse mortgagor;

(ii) lump-sum payment in one or more tranches, to the extent that the aggregate of the amount disbursed as lump sum payments does not exceed Fifty per cent (50%) of the total loan amount sanctioned; or

(b) in part or in full, to the annuity sourcing institution for the purposes of periodic payments by way of annuity to the reverse mortgagor.”

  4. Period of reverse mortgage loan.- The loan under reverse mortgage shall not be granted for a period exceeding,-

   (i) twenty years from the date of signing the agreement by the reverse mortgagor and the approved lending institution, where the loan is disbursed in accordance with clause (a) of Point 3;

   (ii) the residual life time of the borrower, where the loan is disbursed in accordance with clause (b) of Point 3.

   5. The borrower can opt for a monthly, quarterly, annual or lump sum  payments at any point, as per his discretion.

   6. The revaluation of the property has to be undertaken by the Bank or HFC or annuity sourcing institution once every 5 years.

   7. The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.

   8. Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.

Taxability:

A new clause (xvi) in section 47 of the Income-tax Act has been inserted to pro­vide that any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government shall not be regarded as a transfer and therefore shall not attract capital gains tax. Accordingly, in pursuance of above, Reverse Mortgage scheme has been notified vide notification No.93/2008 {S.O No. 2310(E)} dated 30th Septem­ber, 2008. The Act has clause (43) to section 10 of the Income tax Act, 1961 to provide that any amount received by an individual as a loan either in lump sum or in installments in a transaction of reverse mortgage referred to in section 47(xvi) shall be exempt.
There will be capital gains tax only at the time of alienation of the mortgage property to repay the loan.

Settlement of a reverse mortgage:

A reverse mortgage loan becomes due when the last surviving borrower dies, or if the borrower chooses to sell the house. Settlement of loan, along with accumulated interest, to be met by the proceeds received out of sale of residential property and any surplus to be paid to heirs. The bank first gives an option to the next of kin to settle the loan along with accumulated interest, without sale of property. If the next of kin is unable to settle the loan, the bank then opts to recover the same from the sale proceeds of the property.

The few conditions to be met for Reverse Mortgage are:

   1. Objective of Loan is to address the financial needs of senior citizens owning self occupied property (house) by generating income / supplementing pension / other income, for their day to day requirement.

   2. It must be in your name. The borrower should have a clean title. Ancestral properties are therefore discouraged.
   3. The borrower should be living in it.

   4. The house must be insured with a large residual value, of least 15- 20 years.

   5. If the borrower is the sole owner of the house, his will should pass it on to his spouse only. He will have to state that this is his last will and he should get it registered.

 Other Highlights of reverse mortgage:

• Prepayment of loan: Borrowers could prepay the loan at any time during the tenor of the loan, at no prepayment penalty or charges.
• Outliving the tenure of the loan: If the borrower outlives the tenure of the loan, he could continue to stay in the house. The lending institution may however cease the monthly payments. Settlement of the loan is done only after the borrower's death.
• Death of one of the spouses: If one of the spouses dies, the other can still continue living in the house. Only on death of both, settlement of the loan takes place.
• Foreclosure: The loan could be foreclosed by the lender if:

a. The borrower has not stayed in the house for a continuous period of one year.

b. The borrower has not paid property taxes and fails to insure the home.

c. If the borrower declares himself as bankrupt.

d. If the mortgaged property is donated or abandoned by the  borrower.

e. If the borrower makes changes in the residential property, that could affect the security of the loan for the lender. This could be renting out part or entire house, addition of a new owner to the house's title or creating further encumbrance on the property.

Drawbacks of reverse mortgage

• Lengthy documentation procedures: Banks require various documents of the property. For a senior citizen this procedure could be tedious, complicated and difficult to understand.
• Fixed monthly amounts: The monthly payouts are fixed. There is no provision to increase this amount in case of an emergency or contingency.
• In some cases borrowers will have to give an undertaking that they will not remarry during the currency of the loan. If the borrower chooses to remarry, the loan will be foreclosed.
• Residential property can’t be rented out fully or partly.
• Premium of insurance of mortgaged property to bank shall be paid by borrower regularly.

Philately & Coin Collection

Philately & Coin Collection

Rajeev Gandhi Equity Saving Scheme U/sec. 80CCG

RAJEEV GANDHI EQUITY SAVING SCHEME

In the Union Budget 2012-2013, the government Finance Minister introduced a brand new scheme known as - Rajiv Gandhi Equity Saving scheme with twin edges of understanding and investment in hand-picked Equities and additionally enjoying tax advantages for selected  investors. scan this article to understand the key highlights of the scheme.

Effective from 1st April 2013, investors with a gross total income not more than Rs.12 lakh can invest in RGESS, up from earlier income limit of Rs.10 lacs. Investors can park funds in Mutual Funds and listed shares and extended tax benefits to three successive years.

Who can invest in RGESS?	New retail investors with an annual income of less than 10 lakhs.
How much can I invest?	The maximum amount eligible for claiming benefit under RGESS is Rs. 50,000.
Tax Benefit	Deduction u/s 80 CCG, is available on 50% of the amount invested. The benefit is in addition to deduction available u/s Sec 80C.
Lock-in Period	3 years. Fixed lock-in during first year followed by a flexible lock-in for subsequent two years.

Rajiv Gandhi Equity Savings Scheme (RGESS) is a new equity tax advantage savings scheme for equity investors in India. The scheme got it's approval on September 21st, 2012. It is solely for the first time retail investors in securities exchange  market.

The investors who invest up to Rs.50,000 in 'Eligible Securities' and have gross total annual income less than or equal to Rs.10 Lakhs will benefit from a new section 80CCG under the Income Tax Act, 1961 on 'Deduction in respect of investment under an equity savings scheme' has been introduced to give tax benefits.

Example:
Let us say, you invest Rs.50,000 under RGESS, the amount eligible for tax deduction from your income will be Rs.25,000. Alternatively, if you invest Rs.30,000 under RGESS, the amount eligible for tax deduction will be Rs.15000. So you may save about Rs.1545, Rs.3090 for income tax slabs 10% and 20% respectively under this scheme.

Eligibility

• Demat Account Not Opened
• No transactions in Equity or F&O
• Resident Individual
• Annual Income < =Rs. 10 lakh
• If Demat Account already Opened, No transactions in Equity or F&O. You can use the Form A for this purpose.
• 2nd & 3rd holder of an account can open a new account as 1st holder

Lock in Period

The eligible securities brought into the demat account will be automatically locked-in from the date of investment till one year from the date of last purchase of RGESS eligible securities. This period is called ‘Fixed Lock-in’ during which you cannot pledge or sell these securities.

• Holding Period = 3 Years
• Fixed lock-in Period = 1 Year from the date of credit
• Flexible lock-in Period = 2 Years from the end of Fixed lock in period

During subsequent two years called as Flexible Lock-in, you can sell and buy RGESS securities. However, you will have to maintain the value of RGESS investment for cumulative period of 270 days during each of these two years.

The total lock-in period for investments under the Scheme would be three years including an initial fixed lock-in period of one year, commencing from the date of last purchase of securities under RGESS. 

Illustration of Lock-In in RGESS

     II. RGESS lock in period if investments are brought in installments

 

Eligible Securities

• Companies belonging to BSE-100 or CNX-100 and their Follow On Public Offers
• PSUs designated as Maharatna, Navratna or Miniratna and their Follow On Public Offers
• Mutual Fund or Exchange Traded Fund Schemes investing in RGESS eligible securities and their New Fund Offers
• Initial Public Offers of PSU with 51% or more government holding