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Tricky & Illusive Tax Reliefs Coupled With Mischievous Tax Provisions Disappoint Tax Payers!

           The FM announced the setting up of 839 new FM radio stations in 294 Indian cities in his Budget speech 2013. However, quite ironically, the FM’s Budget did not play any sweet music for taxpayers of India.

           P Chidambaram, the FM who in 1997, endeared himself to India’s taxpayers with his dream budget has only  flattered to deceive in 2013! Opening his budget speech, he quipped that, “I intend to keep my speech simple, straight forward and reasonably short.” However, only when one goes through the details of the 50 clauses, as contained in the Finance Bill, 2013, does one discover the number of tax googlies astutely thrown in by PC, almost in the style of his name sake, the great magician P C Sarkar!


            Indeed, there are a few tax reliefs, in his otherwise disappointing budget for the common tax-payer, but even these have been packaged with numerous riders, in the form of ‘terms and conditions apply,’ which we commonly come across attached with seemingly enticing proposals.

             How else can you explain the scheme for tax credit of Rs.2,000, which will be available only to taxpayers having income upto Rs.5 lakhs. PC said this was being given to cover an inflation rate of 10% on the basic exemption of Rs.2 lakhs. As if, those with incomes more than Rs.5 lakhs have not encountered inflation. The FM paid rich tributes to women, but had nothing to offer them concrete, in terms of income-tax relief.


            14 years since the prevailing deduction for interest on housing loan of Rs.1,50,000 was introduced in 1999, when the FM talked about granting additional benefit of Rs.1 lakh, in respect of interest on housing loan, it did bring smiles on the faces of many prospective house owners, who thought their relief in this regard was being enhanced to Rs.2,50,000. But this joy turned out  short lived, as soon they got to know the numerous ifs and buts, linked with the new proposal under Sec.80EE of the Income-tax Act.

            Taxpayers residing in metros may hardly get to enjoy this benefit, as the proposed relief is restricted only for houses, which do not exceed Rs. 40 lakhs in value! Moreover, this benefit, which would be available only in respect of loans not exceeding Rs.25 lakhs, that too sanctioned between April, 2013 to March, 2014, has been restricted to an all time Rs.1 lakh only. Quite surprisingly, the FM has obliged only banks and housing finance companies in respect of such loans and hence, a taxpayer cannot enjoy this deduction, if the loan is taken from any private source including his employer.


             What was introduced by Pranabda in Budget 2012 and dropped later, when the Finance Bill came to be passed, has been reintroduced once again, by PC. While it is indeed difficult to appreciate the justification for this provision as explained in the Budget Memorandum, scores of practical hurdles and difficulties are also bound to arise in the implementation of the proposal to deduct tax at source (TDS) @ 1% from the consideration of Rs.50 lakhs or more, paid by a buyer for the purchase of any immovable property.

      Every investor wanting to buy a house or a plot of land would now need not only PAN but also TAN and would be further required to comply with onerous procedures in relation to deduction & payment of TDS, filing of TDS return, issue of TDS certificate etc.

             The FM has tried to plug the loopholes in regard to the provision of Section 50C, by providing that even properties held as stock in trade, if transferred below the Jantri value, would attract tax under the head business income, in accordance with the provisions of the newly proposed Section 43CA.

          However, grave hardship will be caused to taxpayers now, purchasing any immovable property below the Jantri Value on account of the newly proposed provision of Section 56(2)(vii), which prescribes that the difference between the purchase cost and jantri value will be notionally taxed as income from other sources, attracting the appropriate rate of tax, in the hands of the concerned purchaser. This means that there would effective double taxation of the same amount, both in the hands of the seller u/s. 50C or 43CA and also in the hands of the purchaser u/s. 56(2). 

      The silver lining in the above two provisions, fortunately, is the proviso which refers to exempting a  situation where after having entered into an agreement  for sale, the Jantri value goes up before the execution of the sale deed. However, while both the proposed Sections 43CA and 56(2) carry this welcome proviso, the old Section 50C needs to be suitably amended to incorporate the same. 

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