New Income Tax amendments related to property transactions

As per the Finance Act, 2012 a new section 54GB has been added in the Income Tax Act which provides relief from re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.  Some of the important conditions to avail this benefit are as under:-

i)    The amount of net consideration is used by the individual or HUF before the due date of furnishing of return of income under sub-section (1) of section 139, for subscription in equity shares in the SME company in which he holds more than 50% share capital or more  than 50% voting rights.

ii)    The amount of subscription as share capital is to be utilized by the SME company for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.

iii)    If the  amount of net consideration subscribed as equity  shares in the SME company is not utilized by the SME Company for the purchase  of plant and machinery before the due date of filing of return by the individual or HUF, the unutilized  amount shall be deposited under a deposit scheme to be prescribed in this behalf.

iv)    Suitable safeguards so as to restrict the transfer of the shares of the company, and of the plant and machinery for a period of 5 years are proposed to be provided to prevent diversion of these funds. Further, capital gains would be subject to taxation in case any of the conditions are violated.

v)    The relief would be available in case of any transfer of residential property made on or before 31st March, 2017.

The above mentioned tax benefit is applicable only in respect of long-term Capital Gains arising on sale of a residential property, namely a house or a plot of land.

Taxation of unexplained investments

In case unexplained investment in house property is made on or after 1st April 2012, then as per the new provision contained in section 115BBE income-tax will be chargeable at the rate of 30%.  All tax payers are therefore advised to carefully enter into property transactions in particular and not to make any unexplained investment in the Real Estate Sector, otherwise there will be heavy dose of income-tax.

Tax Deducted at Source on transfer of certain immovable property

As per the Finance Act, 2012 it is provided that every transferee at the time of making payment or crediting any sum by way of consideration of immovable property (other than agricultural land), shall deduct tax at the rate of 1% of such sum if the consideration paid or payable for the transfer of such property exceeds:-

(a)    50 lakh rupees in case such property is situated in the specified urban agglomeration or

(b)    20 lakh rupees in case such property is situated in any other area.

 The specified area for which the limit of Rs. 50 lakh and above is applicable will mean the following areas :-

(i)   Greater Mumbai urban agglomeration

 (ii)  Delhi urban agglomeration

 (iii) Kolkata urban agglomeration

 (iv) Chennai urban agglomeration

 (v)   Hyderabad urban agglomeration

 (vi)  Bangaluru urban agglomeration

 (vii) Ahmedabad urban agglomeration

 (viii) District of Faridabad

 (ix)    District of Gurgaon

 (x)    District of Gautam Budh Nagar

 (xi)    District of Ghaziabad

 (xii)    District of Gandhinagar

 (xiii)    City of Secunderabad

Thus, other than the above areas the new provision relating to tax deduction at source will be where the property value exceeds Rs 20 lakh.  It is also provided that where the consideration paid or payable for the transfer of such property is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty, the value so adopted or assessed or assessable shall be deemed as consideration paid or payable for the transfer of such immovable property.

Residential Foreclosure Temptation

Making money by purchasing foreclosed homes sounds like an easy way to turn a profit, but buyer beware: The unwary purchaser may be buying a financial disaster.

Residential real estate foreclosures have been on the rise nationwide for the past several years with little sign of slowing down in the near future. The adjustable rate mortgage phenomenon coupled with general economic factors of our time have created a perfect storm of disaster for many homeowners, and the result is that many homeowners are finding their homes in foreclosure. With these foreclosures comes an excellent opportunity for a knowledgeable investor.

For the ill-informed, however, buying a foreclosed property at a sheriff’s sale can be confusing at best, and at worst it can be financially disastrous.

Become Familiar With The Foreclosure Process In Your State
The foreclosure process in each state is dictated by statute and case law, and the procedure differs greatly from state to state. In some states, such as Texas, the entire process can take less than three months. In other states, such as Wisconsin, the process can easily take nine months to a full year, or even longer if the homeowners file for bankruptcy protection or otherwise work to delay the process.

Each state has its own methods and procedures, and the first step to success is understanding the foreclosure process for your state in its entirety. If you plan on making foreclosure investment a serious venture, you may even wish to enlist the assistance of an attorney who can advise you on the foreclosure process and help you better understand the full procedure for your state.


Do A Thorough Title Search
In many states, properties are sold at foreclosure sales subject to any liens and encumbrances already on the property. This can include judgment liens, tax liens, prior mortgages, real estate taxes or any number of other financial or title issues which the purchaser at the foreclosure sale can inherit. An unwary purchaser may buy a property that seems like a great bargain only to find out that it was sold subject to tens of thousands of dollars worth of other liens, or worse.

Do not rely on the statements of other potential purchasers, the attorneys for the foreclosing bank, or even those of the homeowner when it comes to the status of the title to the property. Either enlist the assistance of a title company or become familiar with searching the judgment rolls, tax records and real estate records. It is absolutely essential to exercise due diligence and research the status of title for each property before even considering placing a bid at a foreclosure sale.

Be Skeptical About The Property’s Condition
Unlike a traditional real property transaction, there is rarely an opportunity to view the interior of the foreclosure property prior to purchase. Further, the properties are purchased as-is with absolutely no warranties as to their condition. Some interested buyers do contact the homeowners and ask to view the interior of the property, but not all owners are willing to show their houses and in many cases the property has been abandoned or the owners are difficult to locate. As your only evaluation of the property’s condition is likely to be from the exterior, it is essential to think critically about the interior’s condition.

When residential properties go into foreclosure it almost always related to the owner’s financial difficulties. This means that there may be maintenance issues with the property that were ignored due to their expense, or serious repairs that should have been done but were neglected due to the cost. As a purchaser of a foreclosure property, you must be willing to take on whatever problems the interior or structure of the property may have.

There Will Always Be More Properties
Foreclosures are showing no sign of slowing down. If you have serious reservations or unanswered about a property it may simply be best to hold off and wait for the next one. If you cannot go into a foreclosure sale armed with complete knowledge of the property you want to bid on – knowledge of the status of title, the interior and exterior condition, and any other issues that might be of concern to you – you may be better off waiting for the another property.