[ad_1]
I wish to exchange my existing flat with a bigger flat. My flat is valued at Rs. 50 lakhs whereas the other flat is valued at Rs. 85 lakhs so I will have to pay additional Rs. 35 lakhs for this exchange. Please guide me whether I have to deduct tax on 85 lakhs or I do not have to deduct any tax as the amount payable by me is below the threshold of 50 lakhs?
This is a bit complicated. As per Section 194IA of the Income Tax Act, a buyer of an immovable property is required to deduct tax at source @ 1% if the consideration for the property is 50 Lakh or more. The tax is required to be deducted at the time of payment or at the time of credit. In your case the value of the bigger flat is Rs. 85 lakhs so it can be argued that the consideration for the exchange is Rs. 85 lakhs which is going to be discharged in two parts.
The first part of the consideration is Rs. 50 lakhs in the form of your existing flat and the balance Rs. 35 lakhs in the form of money. So as far as the condition of threshold is concerned, you are covered under Section 194IA and required to deduct tax.
However, as the section also uses the words “at the time of payment of such sum” in my opinion, your obligation to deduct tax is restricted to 1% on Rs. 35 lakhs and not on the whole of the sale consideration. Contrary view is also possible and one can argue that since the amount payable is less than Rs, 50 lakhs, you are not required to deduct any tax.
Since the seller eventually gets the credit for tax deducted by the buyer, I would advise you to play safe and deduct tax @ 1% on Rs. 35 lakhs the amount which you are paying. It is in your own interest to take a conservative approach in tax matters and avoid being adventurous specifically when it is not going to harm the other party also.
Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on his Twitter handle.
Never miss a story! Stay connected and informed with Mint.
Download
our App Now!!
[ad_2]