Frequently asked questions on matters related to valuation and capital gains:
A. Scenario: You have received notice under served under section 143(1)(a) of income tax act asking to submit response and proof for a past sale of property. Typically the notice asks you to submit a response in 15 days and attach all supporting documents before you submit your response. What should you do?
- Must I necessarily go to a chartered accountant or a tax lawyer on receipt of capital gains tax notice? If a tax lawyer or a chartered accountant (CA) has filed your return, it is a good idea to consult that professional. CA and tax lawyers tend to see more such cases and are more attuned to responding to such notices. But there is no bar on preparing and filing your own response.
- But what if I have not filed any income tax return as I was not accessible to tax or I prepared and filed my returns on my own? You can still contact a professional to prepare and file a reply after providing the details. You can also prepare and file a reply on your own provided you have all the papers for it.
- What papers are needed to file a response to a notice on capital gains? The following is not a complete or an exhaustive list but it is good to have them accessible:
- Income tax return for the relevant year if you filed a return - check if any details of sale of property has been declared in the return
- Sheet of computation of income tax
- If you were not liable to file return or did not file, it is still good to prepare a return and compute the income tax payable
- If property was purchased against a loan - then loan papers, including statement of loan
- Print out of the passbook of the account from which amount for purchase of property was paid (if applicable)
- Print out of the passbook of the account in which sale proceeds for sale of property were received (if applicable)
- If you are the seller - then Valuation Report indicating the Fair Market Value of the sold property as on 01-04-2001. Get such a report done even if you did not purchase the property and only inherited a property that was in existence and in the name of say a parent/grand-parent
- Why is a Valuation Report even needed? Cannot the guideline value fixed by the state government for the purpose of registration fee and stamp duty on the date of sale agreement be used in lieu of a Valuation Report? Some Chartered Accountants and tax lawyers do take this approach when filing a reply. However, sometimes the matter remains open even after a reply is filed and assessee or his authorised representative is asked to appear with all evidence. Then the written reply already filed will have to be substantiated with evidence. When ever you sell a property, it is a good practice to obtain a professional valuation report before you file the return of the relevant financial years. it will help to determine the capital gains tax, if any payable and the quantum of sale proceeds that needs to be invested in capital gain bonds or in capital gains accounts to avoid capital gains liability. A valuation for assessing Fair Market Value and not limited to Guideline Rate on two different rates, though it is also relevant. A Valuation Report is also accepted more by the Income Tax department when done by a valuer registered with Income Tax Department under the Wealth Tax Act, 1957 (as on the date of posting this article, a Valuer's Bill has been proposed). Valuation Report when validly done constitutes "evidence" and can be produced should a notice calling for further evidence be received. Such a report reflects the prevailing market prices as on the date, all features of the property that impact its valuation, the guideline values prescribed by local authorities on all relevant dates. The Income Tax Department can get the valuation done by its own in-house Departmental Valuation Officer if it disagrees with the process of valuation.
- What if I am travelling, on tour when I get such a notice through email? Do I have to rush back to respond no matter whatever the cost or consequence? It is normally good to acknowledge receipt of notice and write back to the official who has issued the notice requesting additional time to response citing reasons - that you are away or are attending on someone ill, or the notice pertains to a past year whose details are not immediately accessible at your current place of stay and you cannot travel due to children's exams and no one to attend etc. State your reason and request time to file a reply. Such a reply can also be sent online should you have an e-filing account.
- What if I paid all purchase price for the house/land in cash? Real estate properties cannot be transacted in cash (neither paid for in cash nor sale proceeds received in cash above Rs. 20000 (twenty thousand only)) since June 1, 2015 as per section 269 SS of Income Tax Act, 1961. Income Tax department has access to full details of sale as uploaded by the Registration Offices across India.
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