In a major relief, Govt exempts properties in Delhi's unauthorised colonies from income tax

Since these colonies were previously unauthorised, some may have purchased houses or lands at below the circle rate fixed by the government for registration of properties.

Published: 30th June 2020 07:26 PM  |   Last Updated: 30th June 2020 07:26 PM   |  A+A-

Income Tax

For representational purposes


NEW DELHI: In a big tax relief for Delhi's unauthorised colonies that were regularised last year, the government has exempted owners from income tax even if they had purchased land or house at rates below the prevailing market price. The government had last year legalised unauthorised colonies in the national capital, giving house owners legal property rights.

Since these colonies were previously unauthorised, some may have purchased houses or lands at below the circle rate fixed by the government for registration of properties. Now, the government has decided to give such owners exemption from payment of income tax. Without this exemption, such owners have become applicable on the difference between fair market value and actual purchase price.

The Central Board of Direct Taxes (CBDT) through a notification said the exemption would come into effect from April 1, 2020, and would be applicable for Assessment year 2020-21 and subsequent years. It said tax would not be levied on "any immovable property, being land or building or both, received by a resident of an unauthorised colony in the National Capital Territory of Delhi, where the Central Government..regularised the transactions of such immovable property based on the latest Power of Attorney, Agreement to Sale, Will, possession letter and other documents .... in favour of such resident".

Presently tax is levied only on the differential of fair market value (FMV) and actual purchase price, if the house property is acquired at a price lower than the circle rate. Nangia Andersen LLP Partner Suraj Nangia said this is a peculiar case, where the property might have been acquired by respective individuals a long time back by way of General POA (Power of Attorney) or other similar authorisation and only such purchase has been regularised in process of regularising the unauthorised colonies.

"Therefore practically, all the acquisitions before that date of regularisation have been tax exempted by way of present notification, so that individual residents don't have to pay tax on any notional income, even if FMV as on date of regularisation is more than the purchase price of such property,” Nangia said.

Over 1,700 unauthorised colonies In Delhi were regularised in December last year after Parliament passed a law allowing ownership rights to be given on the basis of power of attorney, agreement of sale, will or possession letter.

Since the purchase price of these house properties were less than the circle rate prevailing in those areas, the differential in the price would have been subject to income tax in the hands of the owner.  The I-T exemption given by the CBDT through notification dated June 29 exempts the owner of these properties from payment of tax on the differential of FMV and purchase price.

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