Income tax Liability
This query is : Resolved
21 June 2010
A person has won through lucky draw a flat which is under construction. he has registered the property in his name but possession is later in this year. What is his tax liability? Whether he has to pay income tax after registration or after getting possession?
21 June 2010
He has to pay 30% of the total value of flat as tax at the time of registration of flat in his name
21 June 2010
in this case section 194B is applicable
21 June 2010
Section 194B TDS is applicable
22 June 2010
My friend is a gov. servant. He purchased a house and based on this purchase he won another house in a lucky draw. His annual income is Rs. 500000/- (Five Lakh say) and the market value of the property won is Rs.800000/- (Eight lakh) and it is under construction. He has paid Rs. 25000 as stampduty and Rs 8000 as registration fees. He will also pay Rs.65000 towards meter charges, society charges etc for this property . What will be his tax liabilities?
There are many questions like
1) Wheteher Market value of property will be added in his salary income for tax calculation or it will be considered separately for tax? if separate what will be the rate of tax?
2) Whether expenses towards registration of property, stampduty, meter charges etc will be deducted from the market value of the property for income tax calculation?
3) When he becomes liable for payment of income tax for above property after registration or after getting possession/occupation of the property?
4) Whether all the income tax will be paid in lump sum or it can be paid in three installemnts.
5) Whether the tax paid will be advance tax or self assassment tax? please elaborate.
My friend is a gov. servant. He purchased a house and based on this purchase he won another house in a lucky draw. His annual income is Rs. 500000/- (Five Lakh say) and the market value of the property won is Rs.800000/- (Eight lakh) and it is under construction. He has paid Rs. 25000 as stampduty and Rs 8000 as registration fees. He will also pay Rs.65000 towards meter charges, society charges etc for this property . What will be his tax liabilities?
There are many questions like
1) Wheteher Market value of property will be added in his salary income for tax calculation or it will be considered separately for tax? if separate what will be the rate of tax?
2) Whether expenses towards registration of property, stampduty, meter charges etc will be deducted from the market value of the property for income tax calculation?
3) When he becomes liable for payment of income tax for above property after registration or after getting possession/occupation of the property?
4) Whether all the income tax will be paid in lump sum or it can be paid in three installemnts.
5) Whether the tax paid will be advance tax or self assassment tax? please elaborate.
31 July 2024
Here's a detailed explanation of the tax implications for your friend's situation:
### **1. Tax Implications for Winning Property in a Lucky Draw:**
**a. Market Value Inclusion:**
- **Income Inclusion:** The market value of the property won through a lucky draw is considered as income under Section 56(2)(x) of the Income Tax Act. This means the market value of the property (₹8,00,000) will be added to the taxpayer's income and taxed accordingly.
- **Tax Rate:** Since the property is considered as income, it will be taxed at the applicable income tax slab rate based on the total income including this property. For an income of ₹5,00,000 (excluding the value of the property), the applicable slab rate would be as per the income tax slabs for the relevant financial year.
**b. Deductions for Expenses:**
- **Stamp Duty and Registration Fees:** Expenses such as stamp duty and registration fees are considered part of the cost of acquiring the property and are not deductible from the market value of the property. They will, however, be considered while calculating the cost of the property for capital gains when the property is sold.
- **Meter Charges, Society Charges:** These expenses are not deductible for income tax purposes under the current provisions.
**c. Timing of Tax Liability:**
- **Tax Liability Timing:** The tax liability on the property will arise in the financial year when the property is awarded or won, even if the possession is received later. The income is recognized at the time of the award of the property.
**d. Payment of Tax:**
- **Lump Sum or Installments:** Income tax on the property needs to be paid in a lump sum based on the annual income tax return filing. There isn't a provision for paying tax on such winnings in installments. The payment should be made before the due date for filing the income tax return.
- **Advance Tax or Self-Assessment Tax:**
- **Advance Tax:** If the total tax liability exceeds ₹10,000 in a financial year, advance tax needs to be paid in installments as per the advance tax schedule.
- **Self-Assessment Tax:** Any remaining tax liability after the advance tax payment should be paid as self-assessment tax before filing the income tax return.
**e. Tax Calculation and Filing:**
- **Tax Calculation:** The total tax liability, including the value of the property won, should be calculated based on the applicable income tax slab rates. The property’s value will be added to the total income and taxed accordingly.
- **Filing Returns:** The income tax return should include the value of the property won, and the tax should be paid based on the total assessed income.
### **Summary:**
1. **Market Value Taxation:** The market value of the property (₹8,00,000) is added to the annual income and taxed according to the applicable income tax slabs.
2. **Expenses Deduction:** Expenses like stamp duty, registration fees, and other charges cannot be deducted from the property’s market value for tax calculation.
3. **Timing of Tax Liability:** The tax liability arises in the financial year when the property is awarded, not when possession is received.
4. **Payment of Tax:** Tax must be paid in a lump sum based on the annual income tax return. Advance tax should be paid if the total liability exceeds ₹10,000.
5. **Advance Tax vs. Self-Assessment Tax:** Pay advance tax in installments if applicable, and any remaining tax liability should be settled as self-assessment tax before filing the return.
### **Action Steps:**
1. **Calculate Total Tax Liability:** Include the market value of the property in the total income and compute the tax based on the applicable slab rate.
2. **Pay Advance Tax (if applicable):** Ensure you have paid advance tax as per the prescribed schedule.
3. **File Income Tax Return:** Include all income and claim any deductions as applicable. Ensure to pay any remaining tax as self-assessment tax before the return due date.
For detailed calculations or complex situations, consulting a tax professional or advisor would be beneficial to ensure accurate compliance with tax regulations.
### **1. Tax Implications for Winning Property in a Lucky Draw:**
**a. Market Value Inclusion:**
- **Income Inclusion:** The market value of the property won through a lucky draw is considered as income under Section 56(2)(x) of the Income Tax Act. This means the market value of the property (₹8,00,000) will be added to the taxpayer's income and taxed accordingly.
- **Tax Rate:** Since the property is considered as income, it will be taxed at the applicable income tax slab rate based on the total income including this property. For an income of ₹5,00,000 (excluding the value of the property), the applicable slab rate would be as per the income tax slabs for the relevant financial year.
**b. Deductions for Expenses:**
- **Stamp Duty and Registration Fees:** Expenses such as stamp duty and registration fees are considered part of the cost of acquiring the property and are not deductible from the market value of the property. They will, however, be considered while calculating the cost of the property for capital gains when the property is sold.
- **Meter Charges, Society Charges:** These expenses are not deductible for income tax purposes under the current provisions.
**c. Timing of Tax Liability:**
- **Tax Liability Timing:** The tax liability on the property will arise in the financial year when the property is awarded or won, even if the possession is received later. The income is recognized at the time of the award of the property.
**d. Payment of Tax:**
- **Lump Sum or Installments:** Income tax on the property needs to be paid in a lump sum based on the annual income tax return filing. There isn't a provision for paying tax on such winnings in installments. The payment should be made before the due date for filing the income tax return.
- **Advance Tax or Self-Assessment Tax:**
- **Advance Tax:** If the total tax liability exceeds ₹10,000 in a financial year, advance tax needs to be paid in installments as per the advance tax schedule.
- **Self-Assessment Tax:** Any remaining tax liability after the advance tax payment should be paid as self-assessment tax before filing the income tax return.
**e. Tax Calculation and Filing:**
- **Tax Calculation:** The total tax liability, including the value of the property won, should be calculated based on the applicable income tax slab rates. The property’s value will be added to the total income and taxed accordingly.
- **Filing Returns:** The income tax return should include the value of the property won, and the tax should be paid based on the total assessed income.
### **Summary:**
1. **Market Value Taxation:** The market value of the property (₹8,00,000) is added to the annual income and taxed according to the applicable income tax slabs.
2. **Expenses Deduction:** Expenses like stamp duty, registration fees, and other charges cannot be deducted from the property’s market value for tax calculation.
3. **Timing of Tax Liability:** The tax liability arises in the financial year when the property is awarded, not when possession is received.
4. **Payment of Tax:** Tax must be paid in a lump sum based on the annual income tax return. Advance tax should be paid if the total liability exceeds ₹10,000.
5. **Advance Tax vs. Self-Assessment Tax:** Pay advance tax in installments if applicable, and any remaining tax liability should be settled as self-assessment tax before filing the return.
### **Action Steps:**
1. **Calculate Total Tax Liability:** Include the market value of the property in the total income and compute the tax based on the applicable slab rate.
2. **Pay Advance Tax (if applicable):** Ensure you have paid advance tax as per the prescribed schedule.
3. **File Income Tax Return:** Include all income and claim any deductions as applicable. Ensure to pay any remaining tax as self-assessment tax before the return due date.
For detailed calculations or complex situations, consulting a tax professional or advisor would be beneficial to ensure accurate compliance with tax regulations.
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