Properties that come under IT scanner
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What the assessee may have overlooked is that property worth more than Rs.50 lakh could attract wealth tax
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Reaching FOR the moon: High-rise apartments in metros are priced at Rs. 50 lakh and above.
Most of us are aware of the Income Tax rules and when we purchase an immovable property, we take care to reflect the source of income in our returns. The receipts of purchases and payments are produced for scrutiny if called for. In addition to this there are aspects of other direct taxes that could have a bearing on our property transaction.
For example, verification of the registrar’s guideline value of the land, valuation for cost of construction, wealth tax and the capital gains tax are some . However, in recent times, with the property prices increasing and moving beyond Rs.50 lakh price band provisions like wealth tax have assumed more importance.
A recent report described that many flats are sold in cities like Chennai for a price of more than Rs. 1 crore. This is not something to be surprised about. What may be surprising to know is that there are hardly any flats which are priced below Rs. 50 lakh. The buyers may ascertain the legalities of such purchases and check the title . What they may have overlooked is that any property worth more than Rs.50 lakh immediately attracts wealth tax.
Wealth tax is levied on the net wealth of an assessee on valuation date for each assessment year. The charge levied is one per cent of the amount by which the net wealth of the assessee exceeds Rs.15 lakh. The assessee includes individual, Hindu undivided family and company.
Scope of assets
The scope of assets include some of the immovable properties such as any guest house, a residential house unless it is used exclusively for residence of a company employee or officer of a full time employee director and allotted to him by the company under some conditions, a farm house if located within 25 km of the local limits of a municipality and urban land i.e land within the jurisdiction of a municipality within 8 km of such limits.
Assets of immovable properties that are not included in computing the wealth tax are urban land where constructions of buildings are prohibited under any law and land held by the assessee as stock in trade (like promoters buying land for selling after making layout or for development of fats and sale) for a specific period from the date of acquisition. In addition, any unused land for industrial purposes for a specified period from the date of acquisition, any residential property let out for at least 300 days in a previous year, any house occupied by the assessee for his business or profession and one house or part of a house or a plot of land belonging to an individual provided the plot of land comprises an area up to 500 sq.m are not taken into computing wealth tax.
Less than crore
For properties less than Rs.50 lakh and Rs.25 lakh, the following procedure is adopted. Value of the property is the net income per annum multiplied by 12.5 (where 12.5 is the factor arrived at by dividing 100 by the rate of interest, in this case 8 per cent).
The net income in turn is calculated as gross income minus the outgoings. Gross income is the annual rent received if the property is let out and in other cases, the annual rent assessed by the local authority is taken.
The actual rent shall be increased in cases where the taxes levied by the statutory authorities is borne by the tenant or the owner has accepted any amount as deposit (advance payment towards rent for a period of three months or less is not considered).
The value so arrived has to adjust with respect to the un-built area of the plot. For instance a property with an extent of 4,600 sq.ft land and 2000 sq.ft of building in prime area was acquired by the assessee for Rs. 30 lakh in 1994. Today the market value is Rs.80 lakh.
Valuation of the property for the purpose of W.T as on 31-3-2008
Extent of land = 4600 sft
Extent of building in G.F. = 2000 sft
Extent of unbuilt area = 4600 sft – 2000 sft =2600 sft
Percentage of unbuilt area - 2600 sft/ 4600 sft = 56.52 %
And specified area percentage. The filing of wealth tax return is the responsibility of the assessee.
With every property purchase the wealth tax component changes and any upward revision of the property value affects the tax. It is advisable to consult an auditor before purchase of any immovable property in order to understand the present as well as the future tax implications.
(The author is former national president, Institution of Valuers
C .H. GOPINATH RAO
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