FAIR MARKET VALUE OF PROPERTIES- UNDER VALUATION WILL BE TAXED UNDER SECTION 56 OF INCOME TAX ACT


FAIR MARKET VALUE OF PROPERTIES FROM 01-10-2009

Effective 1/10/2009, difference of over Rs. 50,000 between fair market value and purchase value of immovable property will be taxed as income from other sources in the hand of the buyer if buyer is an individual or HUF. Property is as defined in Section 56 and includes immovable property,  jewellery, shares and securities, work of art, drawings, paintings etc.

In case seller is a relative as defined in this same section, the difference in value will not be taxed. However, you have to produce to the AO an Affidavit from Seller establishing that he or she is your relative and that the property is being sold to you for a consideration of lower than the market value. This affidavit has to be stamped as per law of the state having jurisdiction of the AFFIDAVIT (not necessarily the same as state where the property is located). the stamp duty and registration of the immovable property is payable at the value assessed by the state of location of the immovable property.

For fair market value:-

1) Value determined by stamp duty officer for immovable property.

2) Gold and silver jewellery value will be as per date of sale of the jewellery . Ditto for Shares and Securities if listed. If not listed, a valuation will have to be carried out for these properties.

3) Works of Art, Drawings and Paintings will be as per value determined by valuation officer and may always be subject to litigation.

This is indeed a double whammy as Government has resorted to double taxation to curb black money menace. The seller of property already has to pay CG Tax based on the value determined by stamp duty officer if higher than sale price. The buyer of the property has to pay the tax on IFOS if aggregate difference on all properties purchased by him + other credits is over Rs. 50,000 in a year.

It may be better if buyer pays fair market value to seller so both will save on taxes.

Buyers are advised to consult  Chartered Accountants before the purchase of properties.