TDS/Capital gain
This query is : Open
03 February 2010
A pvt Ltd company has a huge land bank & has divided its land bank into small plots of land.Now it is taking deposits from public against its small plots of land on the condition that it will repay the loan at the end of say 2-3 years at the then market value of land or the lender can take the land after 3 years. Whether provision for TDS u/s 194A of IT Act will be made by the borrower company on the notional interest(for the difference between loan amount & the market value of land after 3 years)? what are its other liabilities?
There is a written agreement on the condition that the borrower will repay the loan at the end of 3 years at the then market value of land or the lender can take the land after 3 years. Then what is the tax provision in this respect? TDS on notional interest or capital gain? Shall the borrower start deducting TDS u/s 194A on notional interest right from the beginning of the agreement & adjust the TDS at the time of repayment of loan or can the TDS be adjusted with the long term capital gain while giving away the land after 3 years? What if the notional interest does not exceed Rs 15,000/- i.e. Rs 5000/- p.a.? Can a pvt Ltd company make such an agreement without being NBFC?
CA. Saurabh Mitra
There is a written agreement on the condition that the borrower will repay the loan at the end of 3 years at the then market value of land or the lender can take the land after 3 years. Then what is the tax provision in this respect? TDS on notional interest or capital gain? Shall the borrower start deducting TDS u/s 194A on notional interest right from the beginning of the agreement & adjust the TDS at the time of repayment of loan or can the TDS be adjusted with the long term capital gain while giving away the land after 3 years? What if the notional interest does not exceed Rs 15,000/- i.e. Rs 5000/- p.a.? Can a pvt Ltd company make such an agreement without being NBFC?
CA. Saurabh Mitra
03 February 2010
Firstly, a private limited company cannot accept deposits from public. It is assumed that the amounts collected are advance against the plots.
Here the question of capital gains does not arise at all since the plots are stock in trade.
There is no stipulation as to what will be the growth amount or minimum guaranteed amount. It is linked to the market forces. In the above view, its becomes difficult to provide for interest in the books of account. If the persons take back the land, the land will be sold at its guidance value prevailing on the date of transfer. It is recorded as a sale
Here the question of capital gains does not arise at all since the plots are stock in trade.
There is no stipulation as to what will be the growth amount or minimum guaranteed amount. It is linked to the market forces. In the above view, its becomes difficult to provide for interest in the books of account. If the persons take back the land, the land will be sold at its guidance value prevailing on the date of transfer. It is recorded as a sale
04 February 2010
If there is a clause in the agreement that if the lender does not take back the land after 3 years,he will get Rs 72,500/-(the advance taken by the company is say Rs 50,000/-),then will be there any TDS provision u/s 194A of IT Act in the books of the company? How shall we adjust the TDS after 3 years if lender take the land?
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