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Income tax on token money

Vaibhav (student) (68 Points)

21 October 2013

Sir, I made an agreement to sell for my agriculture land and received the token money against it. But now the purchaser does not pays the balance money and agrees to leave half of the token money. Will half of the token money which he gave up is taxable?

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3 Replies

CA Konfused (Chartered Accountant & CFA Level 1) (302 Points)
Replied 21 October 2013

As per section 51 of the I.T act, 1956, where an assesse in process of selling any capital asset, receives advance money or any other sum, forfeits such amount, then the cost of acquisition of such capital asset shall be reduced by the amount of money forfeited earlier by the assesse . The point to be noted is that the amount has to be reduced before indexation where the capital gain is long term.

However, if the advance money forfeited exceeds the cost of asset, excess shall be capital receipt not chargeable to tax as decided in the case of Travancore Rubber & Tea Co. ltd. Whenever the asset is actually transferred, the cost of acquisition in such a case shall be taken as NIL and capital gain shall arise accordingly.

So in your case it would not be taxable but if in case you sell your asset in future this amount will be reduced from your cost of acquisition.

Regards,

Konfused.

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Vaibhav (student) (68 Points)
Replied 21 October 2013

sir if the value of land is 5 lacs but token money received is 10 lacs, Then what will be outcomes, will it be taxable or what will be value of asset if it is sold in future?

CA Konfused (Chartered Accountant & CFA Level 1) (302 Points)
Replied 21 October 2013

Hi,

If in a case where Amount forfeited is greater than Cost of Acquisition , then the cost of acquisition is Nil as per section 48 read with sec 51 .