The Income Tax Act, 1961, includes provisions to prevent undisclosed income from being generated in the form of real estate transactions. Section 43CA of the IT Act is one such provision that restricts the difference between circle rate and agreement value in real estate transactions.
Circle rate, also known as the guideline value, is the minimum value of a property fixed by the government for tax purposes. The agreement value, on the other hand, is the actual price at which the sale or transfer takes place. The difference between the two is often exploited by buyers and sellers to evade taxes and generate black money.
To curb this practice, Section 43CA of the IT Act was introduced in 2013. According to this provision, if the agreement value of the property is less than the circle rate, the difference is deemed to be the seller`s income for tax purposes. This means that the seller will have to pay tax on the difference, even if they haven`t received the full amount.
This provision applies to all types of real estate transactions, including those involving land, buildings, and flats. It is applicable to both commercial and residential properties.
There are a few exceptions to this rule. If the sale or transfer is between family members or relatives, or if the property is used for business or industrial purposes, the provisions of Section 43CA may not be applicable. Similarly, if the difference between the circle rate and the agreement value is less than 5% of the agreement value, the provision may not be applicable.
It is important to note that the provisions of Section 43CA apply only if the difference between the circle rate and the agreement value is in excess of the threshold limit. If the difference is within the limit, the seller will not be liable for any additional tax.
In conclusion, the provisions of Section 43CA of the IT Act aim to prevent undisclosed income generation in real estate transactions. By restricting the difference between the circle rate and the agreement value, the government seeks to ensure that sellers pay the appropriate taxes on their property transactions. As a professional, it is important to understand these provisions and their implications for real estate transactions.