Real estate - Income tax implications

S e t h & A s s o c i a t e s | 1
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Basics of Income tax applicable to
REAL ESTATE
April 2020
New Delhi | Lucknow | Coimbatore
www.sethspro.com | info@sethspro.com

COVERAGE
Topics Page No.
Joint Development Agreement 4
Slump Sale 7
Affordable Housing 9
Housing Interest Benefit 10
Re-Investment Benefit (Capital Gains) 12
Conversion of FA into Stock in Trade 15
Curbing Black Money 19
Taxation on Notional Rental Income 21
Consideration Received in Excess of FMV of Shares 22
Transfer of Capital Asset by way of Capital Contribution 23

S e t h & A s s o c i a t e s | w w w . s e t h s p r o . c o m | A p r i l 2 0 2 0 | 3
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The real estate sector of India is undoubtedly the biggest employer (directly and
indirectly). Not only employment it is also a major sector from where both the
Central and the state governments get their revenue.
For the central government the levy of GST and Income Tax and for the State
government various taxes (Stamp and labour cess) and fees (maps etc) are a major
source of Income.

Needless to say, that where there is significant amount of revenue involved there
would be intricacies of law and their interpretational issues. As the world prepares
for Post COVID-19 scenario the real estate sector would be keenly watched. It is
widely expected that the real estate contracts would turn more exotic leading to even
more interpretational issues under the various taxation laws.

It would not have been possible for us to cover every facet of real estate taxation in
this publication hence we have given a brief outline of such sections which are
directly applicable and are often missed out. Feel free to reach out to us for a tailor-
made solution to your needs.

CA. Dhruv Seth
Partner, Seth & Associates, Chartered Accountants
Real Estate Vertical (Audit, Taxation and Compliances)
dhruv@sethspro.com
This publication is an attempt to inform the general public about the various
applicable sections of Income Tax Act which relate specifically to RE sector.
Needless to mention interpretational issues cannot be discussed since they
involve unique facts and require a deeper reading.

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Joint Development Agreement
A development agreement may be defined as an agreement
between two or more developers or between a developer and a
landowner to construct or develop a real estate project.
Under a JDA, the landowner enters an agreement with a developer to develop a project, along with a
power of attorney providing the developer with rights such as right to develop, rights to obtain
necessary approvals and create a charge on land etc. A pictorial presentation of the mechanism of a JDA
is shown below:

LANDOWNER
DEVELOPMENT
OF PROJECT
Upfront Payment of Consideration
Built up Area
Built- Up Area Built- Up Area
Gross/Net Revenue
Enters in JDA
Revenue sharing
models
DEVELOPER
LAND
OWNER
PROJECT
DEVELOPER
Cash
Consideration +
Built Up Area

Enters into a JDA

Development
and sale of asset.

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Value of consideration- Section 45(5A) of the ITA states that where
an individual or an HUF transfers a capital asset, being land or
building, to a developer under a JDA and the consideration is to be
received as a share in built-up area with or without cash payment,
then the total consideration will be deemed to be the stamp duty
value, on the date of issue of the said certificate, of a share ,in the
project at the time of completion, as increased by any additional cash
received from the developed.
Section
45(5A)
Where an individual or a Hindu Undivided Family (HUF) transfers a
capital asset, whether land or a building, to a developer under a JDA,
with the consideration to be received as a share in the built-up area
(with or without cash payment) then, the gains arising on such transfer
will be deemed to arise in the year in which the completion certificate
is issued by the authority for the project.
However, if individuals or HUFs sells his share in the project on or
before the date of issue of the said certificate of completion, capital
gains will arise in the previous year in which such sales takes place.
Section
45(5A)
Any transaction involving permission for possession of any immovable
property to be taken or retained in part performance of a contract of
the nature referred to in section 53A of the Transfer of Property Act,
1882. Under a JDA, the landowner parts with possession of the land in
lieu of a certain built-up area or cash consideration, or a combination
of both hence it is capital gains for him.
Section
2(47)(v)
The Taxation in respect of JDA transactions are discussed in detail below:

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Yes

Individual/HUF entering into specified agreement for development of project.
Is the Individual/HUF
transferring his share in
the project after the date
of issue of COC?
Full Value of
consideration to be
computed as per Sec
45(5A) of ITA.
Capital Gains would be
taxable in the PY in
which COC for whole or
part of the project is
issued by the Competent
authority.
Is the Individual/HUF
transferring his share in
the project before the
date of issue of COC?
Stamp Duty Value on the
date of issue of COC+ Cash
Consideration.
Full Value of
consideration to be
computed as per Sec 50C
of ITA.
Capital Gains would be
taxable in the PY in
which the property is
ultimately sold.
SDV on the date of
transfer or Actual
Consideration whichever
is higher
No

Yes

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Slump Sale
As per Section 2(42c), “slump sale" means
Ø the transfer of one or more undertakings
Ø as a result of the sale
Ø for a lump sum consideration
Ø without values being assigned to the individual assets and liabilities in such sales.
In a scenario, where a developer ('existing developer’), post the commencement of
development activities on a piece of land, may be desirous of transferring such ‘under
construction project’ (undertaking) to another developer (new developer). One of the
options available to the Existing Developer is to transfer the undertaking on a going
concern basis to the new developer entity by way of a slump sale. In India, a slump sale
could either be implemented as a business transfer agreement or through a Scheme of
Arrangement under section 230-232 of Companies Act, 2013.
The conditions for a transfer to be taxable as a slump sale under the provisions of the
ITA are given below:
• Transfer of one or more undertakings as a result of a sale for a lump sum
consideration.
• No values being assigned to individual assets and liabilities of the undertaking in
such a sale.
• The ‘undertaking’ being transferred by way of a slump sale should constitute a
business activity and it also includes part of an undertaking or unit or division but does
not include individual assets or liabilities or any combination thereof not constituting a
business activity.

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Computation of capital
gains tax as per Section
50B of the ITA
The key tax implication for an existing developer on a slump sale are given below:

Capital gains is taxable
at the given tax rates
depending on the period
of holding of the
undertaking.
Particulars Amount
Sale Consideration xxx
Less: Expenditure in relation to transfer xxx
Less: Cost of acquisition of undertaking
(book values of non-depreciable assets +
Tax WDV of depreciable assets)
(xx)
Capital gains xxx
Particulars Amount
*LTCG (undertaking
held for more than 24
months)
20%
STCG (undertaking
held for less than 24
months)
The short-term capital gain
is added to the income tax
return and the taxpayer is
taxed according to his
income tax slab. (Normal
rate of Tax)
*The benefit of indexation while computing capital gains
on transfer of long-term undertaking is not available.

Tax exemption for Affordable housing projects
Deductions in respect of profits and gains from housing projects- Section 80-IBA
In a bid to give impetus to affordable housing, section 80-IBA was introduced in the Finance Act, 2016,
which grants profit-linked tax exemption. The section provides 100% tax exemption on profits earned
on an affordable housing project, subject to certain conditions. The regulations or conditions are
applicable to housing projects approved after the 1st day of June,2016, but on or before the 31st day of
March. The key regulations for claiming tax exemption under section 80-IBA of the ITA are as under:
S. No Particulars Conditions
1. Project Approval by the
competent authority
After the 1st day of June, 2016 but on or before 31st March 2020.
2. Project Completion

• Within a period of 5 years from the date of approval by the
competent authority. Such period is reckoned from the date of
first issue of such approval by the competent authority.
• Project shall deemed to have been completed when COC for
the project as whole is issued by the competent authority.
3. Carpet area of the shops
and other commercial
establishments

Does not exceed three per cent of the aggregate carpet area.
4. Type of Project Only housing project on the entire plot of land.
5. Restriction on
Allotment
No other residential unit should be allotted to the
• Same Individual
• spouse of the Individual
• Minor children of such individual .
6. Books of Accounts the assessee maintains separate books of account in respect of
the housing project.
7. Other Requirements S.No Area Chennai, Delhi,
Kolkata or
Mumbai
Others

I.
Size of Plot
of Land
>1000 sq. m >2000 sq. m
II. Carpet
area of a
residential
unit
<30 sq. m <60 sq m.
III. Utilisation
of the floor
area ratio
>90% of the floor
area ratio
permissible in
respect of the plot
of land under the
rules to be made
by the Central
Government or
the State
Government or
the local authority,
as the case may be.
>80% of such
floor area ratio

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Deduction for interest paid on home loan for affordable
housing - Section 80EEA
A new Section 80EEA has been inserted to allow for an interest deduction from AY
2020-21 (FY 2019-20). The existing provisions of Section 80EE allow a deduction up
to ₹ 50,000 for interest paid by first-time home buyers for loan sanctioned from a
financial institution between 1 April 2016 and 31 March 2017. With a view to further
the benefit and give impetus to the real estate sector, the government has extended
the benefit.
A deduction for interest payments up to ₹ 1,50,000 is available under Section 80EEA
to Individual Taxpayers. This deduction is over and above the deduction of ₹ 2 lakh
for interest payments available under Section 24 of the Income Tax Act. Therefore,
taxpayers can claim a total deduction of ₹ 3.5L for interest on home loan, if they meet
the conditions of section 80EEA.
Similar to Section 80EE, in order to claim deduction under Section 80EEA, you should
not own any other house property on the date of the sanction of a loan.

Carpet area of the house property
Does not exceed 60 sq. meter (645 sq. ft) in metropolitan cities of Bengaluru, Chennai,
Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad,
Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Metropolitan Region)
- Does not exceed 90 sq. meter (968 sq. ft) in any other cities or towns.

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CONDITIONS
Difference between Section 80EEA & 80EE
SECTION 80EEA SECTION 80EE
1 Stamp duty value of house should be upto ₹
45 lakh
Value of a house should be Rs 50lakh or less
2 Loan should be sanctioned during April
1,2019 to March,31,2020
Loan should be sanctioned during April,1,2016
to March,31,2017
3 Maximum deduction available is ₹ 1,50,000 Maximum available deduction is ₹ 50,000
4 There is no limit on the of land Value of land should not be more than ₹ 35 lakh
Section 80EEA and Section 24
Under Section 24, homeowners can claim a deduction for their interest payments upto ₹ 2 lakhs
on their home loans, if the owner or his family resides in the house property. The deduction is
applicable even when the house is vacant and also when the house property is rented out.
If one is able to satisfy the conditions of both Section 24 and Section 80EEA of the Income Tax Act,
the benefits can be claimed under both the sections. First, deductible limit under Section 24 is
exhausted, which is ₹ 2 lakh. Then, the additional benefits can be claimed under Section 80EEA.
Therefore, this deduction is in addition to the ₹ 2 lakh limit allowed under Section 24.
Difference between the two sections are as follows:
SECTION 80EEA SECTION 24
1 Sec 80EEA does not impose any requirement of
possession, as soon as you start your interest
payment you can claim for exemption
To claim deduction u/s you
must have possession of your
house
2 Allows home loans taken from banks and financial
institution only
In case loan taken from friends
or relatives and interest paid to
them is also allowed for
exemption
3 Maximum deduction available ₹ 1,50,000/- Maximum deduction available ₹
2,00,000/-
4 Conditions to claim deduction
• Stamp duty value of house upto ₹ 45 lakh
• Assessee not own any residential house
property
• Loan sanctioned during Apr,1,19 to Mar31, 2020
No such conditions exist

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Capital Gains Exemptions
Section 54 and 54F provides the tax reliefs upon reinvestment. The benefits under these
sections is mutually exclusive and can be taken together. The tax relief is available if capital
gain or sale consideration is reinvested in purchase of another residential house and is subject
to some conditions. However, the tax benefit varies benefit upon whether the sold property is
residential or commercial.

SECTION 54

Following conditions should be satisfied to claim the benefit of section 54:

ü The benefit of section 54 is available only to an individual or HUF.
ü The asset transferred should be a long-term capital asset, being a residential house property.
ü Within a period of one year before or two years after the date of transfer of old house, the
taxpayer should acquire another residential house or should construct a residential house
within a period of three years from the date of transfer of the old house.
ü In case of compulsory acquisition the period of acquisition or construction will be determined
from the date of receipt of compensation (whether original or additional).

Exemption can be claimed only in respect of one residential house property
purchased/constructed in India. If more than one house is purchased or constructed, then
exemption under section 54 will be available in respect of one house only. No exemption can be
claimed in respect of house purchased outside India.

With effect from Assessment Year 2020-21, the Finance Act, 2019 has amended Section 54 to
extend the benefit of exemption in respect of investment made in two residential house properties.
The exemption for investment made, by way of purchase or construction, in two residential house
properties shall be available if the amount of long-term capital gains does not exceed ₹ 2 crores. If
assessee exercises this option, he shall not be entitled to exercise this option again for the same or
any other assessment year.

Quantum of Exemption

The Section 54 of the Income Tax Act allows the lower of the two as exemption amount for the tax
payer
ü Amount received as the capital gains on transfer of the residential property.
ü Investment made for constructing or purchasing of the new residential property.

The balance amount (if any) will be taxable as per income tax act.

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4

SECTION 54F

Section 54F of the Income Tax Act provides an
exemption for capital gain in case of transfer of
long term capital assets against investment in
a residential house. The salient features for
availing exemption under section 54F are
detailed hereunder –

1.The exemption under section 54F is available
only to individual and HUF;

2.The capital gain should have arisen on
account of transfer of any long-term capital
assets other than a residential house.

3.Net consideration arisen on account of
transfer of long-term capital assets should have
been invested as follows:

ü Net consideration has been re-invested in
the purchase of one residential house
within a period of 1 year before the date of
transfer or within a period of 2 years after
the date of transfer; or

ü Net consideration has been re-invested in
construction of one residential house in
India within a period of 3 years from the
date of transfer

Quantum of Exemption

ü In case the full amount of net
consideration is invested in the
purchase/construction of a residential
house, then, the full amount of long-
term capital gain gain would be
exempted under section 54F.
ü In a case where only part of the net
consideration is invested in the
purchase/construction of a residential
house, then, only the proportionate
amount of long-term capital gain would
be exempted under section 54F.

Provided that nothing contained in this sub-
section shall apply where the assessee-
ü owns more than one residential house,
other than the new asset, on the date of
transfer of the original asset; or
ü purchases any residential house, other
than the new asset, within a period of
one year after the date of transfer of the
original asset; or
ü constructs any residential house, other
than the new asset, within a period of
three years after the date of transfer of
the original asset.

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Difference between Section 54 & Section 54F:
Section 54 Section 54F
1. It includes exemption of long term capital gains
for sale of residential property
It can be claimed on long term capital gains
for sale of any asset other than a
residential property
2. Entire capital gain needs to be invested to
claim full exemption
Entire sales proceeds need to be invested
to claim full exemption
3. No rule is mandatory for ownership of one or
more residential house property
One cannot own more than one residential
house at the time of sale of the old asset
4. If entire sale proceeds is not invested the
exemption allowed is proportionate
Exemption = Cost of the new house *
Capital gains / Sales Consideration
received
5. If the individual sells the new house property
with I the period of three years from the
purchase the exemption will be reversed and
the capital gains from such property will be
taxed as short term capital gains
If individual sells the new property with in
the period of three years from the purchase
of new property or purchases another
property within two years of sale of
original asset other than the new house
within three years of sale of original
property the exemption will be reversed.
Th capital gains in such case will be taxed
as long term capital gains.
Taxation of Profit on Sale Of Commercial Property
With respect to any commercial property owned and used for the purpose of business, the profits arising
from the sale of such property becomes taxable as short-term capital gain, provided no property is left
under the same category of asset, irrespective of the period of holding.
Exemption can be claimed under section 54F, by investing the net consideration in a residential
property.
In case of commercial property, which is let out, the profit on sale of such commercial property shall be
long term capital gain and will be taxed at a flat rate of 20%, irrespective of the quantum
The way to save tax is by investing in residential house under section 54F or by investing in
capital gains bond under Section 54EC.

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Particulars Tax rate
LTCG (property held for
more than 24 months)
20%
STCG (property held for
less than 24 months)
The short-term capital gain is added to the income tax
return and the taxpayer is taxed according to his income
tax slab. (Normal rate of tax)
Particulars Section 45(2) Section 28(via)
Introduced by F.A. Finance Act 1984 Finance Act 2018
Head of Income Capital Gains PGBP
Point of Taxability When stock is sold.
Mercantile System – In the year of
conversion Cash System – in the
year consideration is received
Valuation As on the date of conversion As on the date of conversion
Conversion of Fixed Asset into Stock in
Trade and vice versa- Section 45(2) &
Section 28(via)

If the immovable property is held as capital asset, transfer of such property will be
taxed as ‘capital gains’ in the hands of the developer. As per section 45(1) Any
profits or gains arising from the transfer of a capital asset effected in the previous
year shall, be chargeable to income-tax under the head "Capital gains” and shall be
deemed to be the income of the previous year in which the transfer took place.
In the hands
of developer
Property held as capital asset
Transfer of assets
On transfer of assets, the developer will be liable to pay capital gains tax, depending on the period of holding
of immovable property at the given rates.
vamus
Profits arising from the transfer by way of conversion of Capital Asset into as Stock-in-trade shall be
chargeable to tax as the income under the head “capital gains” of the year in which such Stock-in-
trade is sold or otherwise transferred. Under the Act, the conversion of capital asset into stock-in-
trade is taxable as capital gains. However, the existing provisions did not cover the situations of
conversion of stock-in-trade to capital asset. To bring parity and to discourage the practice of
deferment of tax payment on conversion of inventory into capital asset, the Finance Act, 2018 was
amended. As per section 28(via), the FMV of inventory as on the date of its conversion into, or treated
as capital asset shall be chargeable to tax under the head “Profit and Gain from Business & Profession”

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Property held as Stock-in-Trade
If the immovable property is held as stock in trade, transfer of such property will be taxed as
‘business income’ in the hands of the developer. As per Section 43CA of the ITA, where a person
transfers any property, be it land or a building, at less than its stamp duty value (i.e. FMV), then
such FMV of the property will be deemed to be the consideration paid. However, if the stamp
value does not exceed 110% of the consideration received, such consideration shall be deemed
to be the full consideration for the purpose of computing profits and gains from transfer of
such asset.

Provisions in Income Tax Act as applicable for adopting
Stamp duty valuation
Under Sec 50C and 43CA of the Income Tax Act any transactions of an immovable property done
below the defined circle rate would be added to the income of the assessee. The difference between
the stamp duty valuation adopted for payment of stamp duty and the actual transaction price
would be deemed to be the income of the assessee in the year the transaction is completed.
Summarized provisions of Sec 43CA and Sec 50C after amendment by Finance Act
2020
Condition
Deemed Sale
Consideration
1. Stamp Duty Value>Actual Consideration
If the Stamp Duty Value>110% of actual consideration.
If the Stamp Duty Value<110% of actual consideration.

Stamp Duty Value
Actual Sales Consideration
2. Actual consideration>Stamp duty Value Actual Sales Consideration
3. Value Ascertained by Valuation Officer> Stamp duty Value Stamp duty Value
4.

Value Ascertained by Valuation Officer< Stamp duty Value Value Ascertained by
Valuation Officer

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If land and
building are
held as stock-
in-trade.
*Stamp Duty Value on
the Date of Agreement
will be considered for
computing FVOC.
Is whole or part of the
consideration received otherwise
than by way of cash on or before
the date of agreement?
Is the date of
agreement different
from the date of
transfer?
Sec 43CA will apply Sec 50C will apply
Is the date of
agreement different
from the date of
transfer?
Is whole or part of the
consideration received by way
of A/c payee cheque/Bank
Draft or ECS through bank A/c
on or before the date of
agreement?
If land and
building are
held as
capital asset.
No No
No No
*Stamp Duty Value on
the Date of Transfer
will be considered for
computing FVOC.
*If the SDV>110% of actual consideration, FVOC= SDV
*If the SDV<110% of actual consideration, FVOC= Actual Consideration
Tax Implication On Transfer Of Immovable Property For Inadequate Consideration
In the hands of
seller

A Pictorial representation comparing Sec 43CA and Sec 50C of ITA is presented
below:

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Item received Threshold limit Amount Taxable
Immovable property
Received without
consideration
Stamp duty value exceeds ₹ 50000 The whole of the
aggregate value of
such sum
Immovable property
Received for consideration
less than the stamp duty
value

Difference between the stamp duty
value and consideration does not exceed
₹ 50000 or,
the amount equal to 10%of the
consideration.
whichever is higher.
Entire difference
between the stamp
duty value and
consideration.
The key features of section 56(2)(x) of the ITA applicable to the investor are as under:
• The receipts contemplated exceeding threshold limit of ₹ 50,000 are taxable
• The receipt must be on or after 1-4-2017.
• The amount liable to tax would be:
In the hands of
developer
Section 56(2)(x) provides that where a person receives certain
property for a consideration, which is less than its fair market value
(FMV) as prescribed under the Income Tax rules, then the difference
between the FMV and consideration paid will be taxed in the hands of
the recipient of the property. The amount on which tax is paid will be
available as the cost of such property received, for the purpose of
calculation of capital gains.

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Construction is a matter of optimism; it’s a matter
of facing future with confidence.
from June 1, 2015, any transaction in real
estate including agriculture land shall be
required to be made through account payee
cheque or real-time gross settlement (RTGS)
or electronic funds transfer if the amount is
₹ 20,000 or above. If the cash transaction
beyond the limit is done, then a penalty of an
amount equal under Section 271D of Income
Tax Act will be imposed on a seller who
accepts cash or refund of advance is made in
cash by the seller of the property.

Exceptions:
The provisions of this section shall not apply
to any loan or deposit or specified sum taken
or accepted from, or any loan or deposit or
specified sum taken or accepted by

ü Government or any banking
company, post office savings bank or
co-operative bank
ü any corporation established by a
Central, State or Provincial Act
ü any Government company
ü other notified institutions
ü where the depositor and the acceptor
are both having agricultural income
and neither of them have any taxable
income.

Section 269SS

The earlier provisions contained in section
269SS of the Income-tax Act provide that no
person shall take from any person any loan or
deposit otherwise than by an account payee
cheque or account payee bank draft or online
transfer through a bank account, if the amount of
such loan or deposit is ₹ 20,000 or more.

In order to curb generation of black money by
way of dealings in cash in immovable property
transactions section 269SS of the Income-tax Act
was amended with effect from 01.06.2015 to
provide that no person shall accept from any
person any loan or deposit or any sum of money,
whether as advance or otherwise, in relation to
transfer of an immovable property otherwise
than by an account payee cheque or account
payee bank draft or by electronic clearing
system through a bank account, if the amount
of such loan or deposit or such specified sum is
twenty thousand rupees or more. Consequential
amendments were also been made with effect
from 01.06.2015 in section 271D to provide
penalty for failure to comply with the amended
provisions.

As per the tax law formulated by the Central
Board of Direct Taxes (CBDT), which is effective
Curbing Black Money
One of the biggest issues faced by the Indian Economy is Black Money and the root cause of
black money is attributable to cash transactions between parties in India. According to
ANAROCK Property Consultants even three years after demonetisation, up to 30 percent of
the total transaction value on the secondary (resale) residential market across India can still
be paid in cash. This causes a pathetic spectacle of huge amass of black money in the real
estate sector. In order to solve the issue, the Government of India has been continuously
initiating various strategic attempts.

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Clauses Meaning Irrespective Of
(a) in aggregate from a person in a day No. of persons – 1
No. of days – 1
Number of transactions
(b) in respect of a single transaction No. of transactions – 1 Number of persons Number
of days
(c) in respect of transactions relating to
one event or occasion from a person
No. of persons – 1
No. of event/occasion – 1
Number of days Number of
transactions
100% of the amount that was acquired in
contravention of this section.
In such a scenario, if a person, receives cash in
excess of ₹ 2,00,000, it will be considered a
violation of the section. Therefore, penalty is
leviable u/s 271DA.@ 100%.

Exceptions:
It has been provided that the provisions of this
section shall not apply to any receipt by—
ü Government;

ü any banking company, post office
savings bank or co-operative bank;
ü transactions of the nature referred to in
section 269SS;
ü such other persons or class of persons
or receipts, which the Central
Government may, by notification in the
Official Gazette, specify.

REAL ESTATE:
It needs to be ensured by the real estate
developers that there is no receipt of any
amount of cash in case the demand letters
send are in excess of Rs. 2 lacs.

Section 269ST
Before 1st April, 2017, there is no provision in
income tax regarding cash receipts. Withs its
introduction, section 269ST casts a restriction
on the person receiving the cash i.e. payee.
The Finance Act of 2017 introduced Section
269ST in the Income Tax Act with effect from
April of 2017. This section was implemented in
order to make provisions to restrict cash
transactions as the effectiveness to control black.
Section 269ST of the Income Tax Act states that
No person shall receive an amount of two lakh
rupees or more—
ü in aggregate from a person in a day; or
ü in respect of a single transaction; or
ü in respect of transactions relating to one
event or occasion from a person,
otherwise than by an account payee cheque or
an account payee bank draft or use of electronic
clearing system through a bank account.
A new Section 271DA was introduced under the
Income Tax Laws and Rules. According to this
Section, if an individual receives an amount in
contravention to any of the provisions or rules of
Section 269ST, they would be held accountable
to pay a penalty of the total sum equal to the
amount that was received in cash. Thus, in
layman terms, the penalty amount would be

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Notional Rental Income - Section 23(5)
In CIT v. Ansal Housing (2016) 389 ITR 373
(Delhi)(HC) and in CIT v. Sane and Doshi
Enterprises (2015) 377 ITR 165 (Bom.)(HC)
courts have held that sections 22 and 23 is
applicable to assesses who are engaged in
business of construction of house property
and are therefore liable to pay tax on the annual
letting value of the unsold flats as “Income from
House Property”.
Section 23(5) now seeks to tax notional income
in respect of house property held as stock-in-
trade. Thus, the developer who has unsold
completed /built flats as inventory / stock-in-
trade would be covered, thereby charging to tax
notional rental income without actually earning
the same.
Where the property consisting of any building or
land appurtenant thereto is held as stock-in-
trade and the property or any part of the
property is not let during the whole or any part
of the previous year, the annual value of such
property or part of the property, for the period
up to one year from the end of the financial year
in which the certificate of completion of
construction of the property is obtained from the
competent authority, shall be taken to be nil.
Finance Bill 2019, based upon the
recommendation from industry, has further
extended relief to the taxpayer builders for one
more additional year. Consequently, notional
rent in respect of unsold inventory shall not
be charged to tax up to two years, instead of
existing one year, from the end of the financial
year in which the certificate of completion is
obtained from the competent authority.
Therefore, under section 23(5) incidence of tax
would arise after period of two year from the
end of financial year in which certificate of
completion of construction is obtained from
the competent authority.

-
Where a company issues shares at a value higher than its face value, then the amount received by
the company in excess of the FMV determined by income tax provisions shall be taxed as income in
the hands of the company. Therefore, while issuing the shares to the investor(s), the JV
entity/company should ensure that the shares are issued at the FMV as per the guidelines provided
in this section. In case the JV entity is incorporated as an LLP, no implications would arise under
section 56(2) (viib), as stated above.
Consideration received in Excess of FMV of
Shares - Section 56(2)(viib)
Applicability of Section 56(2)(viib)

Face Value
of Shares
(₹)
FMV of
Shares
(₹)
Issue
Price of
Shares
(₹)
Applicability
(i) 100 120 130 Applicable
The provisions are attracted since the shares are
issue at premium (i.e., issue price exceeds the FV).
The excess of issue price over the FMV would be
taxable
(ii) 100 120 110 Applicable
issue at premium. However, no sum shall be taxable
as the shares are issued at a price less than FMV
(iii) 100 90 98 Not Applicable
Since the issue is at discount, though the issue price is
greater than the FMV
(iv) 100 90 110 Applicable
issued at a premium. The excess of the issue price
over the FMV would be taxable
Determining Fair market value
In terms of rules the fair market value of the shares would include the
stamp duty value of the immovable property as appearing in the books of
accounts. Mere historical cost stated in the books is to be disregarded.


The profits or gains arising from the transfer of a capital asset by a person to a firm
or other association of persons or body of individuals(not being a company or a
cooperative society)in which he is or becomes a partner or member, by way of capital
contribution or otherwise, shall be chargeable to tax as his income of the previous
year in which such transfer takes place and for the purposes of section 48, the amount
recorded in the books of account of firm, association or body as the value of the
capital asset shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer of the capital asset”.
Transfer of a Capital Asset by way of Capital Contribution -
Section 45(3)
From the above it follows, in case the JV entity is incorporated as an LLP or a firm, transfer of land
(being a capital asset) by the developer, by way of capital contribution, to the LLP or the firm
would be subject to capital gains tax in the hands of the developer (depending on period of
holding). Under section 45(3) of the Income Tax Act, the amount recorded by the LLP or the firm
in its books of accounts shall be deemed to be the full value of consideration for computation of
capital gains in the hands of the developer. However, in case the land is held as stock in trade, the
provisions of section 45(3) would not apply and the income shall be charged to tax as ‘business
income’ and the provisions of section 43CA should be applicable

-

Seth & Associates was established in 1975 and since then it has been providing unparalleled value
addition to its client. We are a firm with diverse and rich exposure in various fields. All our
partners are full time active working partners looking into specific sector domains such as
Corporate Law, Direct Tax, Indirect Taxes, Raising Capital (Bank and Equity), Business Advisory
solutions, Forensic and Information Technology audit and many other core sectors relevant to
overall growth of the clients.
The information herein contained is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavour to provide accurate
and timely information, there can be no guarantee that such information is very accurate and
considers the latest amendment in laws which are very frequent. The above is purely for academic
reading and general awareness of the law. No one should act on this information without
appropriate professional guidance which requires a thorough examination of a particular
situation.
This content is owned by Seth & Associates, Chartered Accountants and is not be reproduced
without our explicit permission.
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Real estate - Income tax implications

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