Finance Act 2017

The current financial year (2017-18) is subject to some important changes (some of which have been briefly discussed below) to the Income Tax Act 1961 (the Act) as introduced by the Finance Act 2017, especially with respect to the computation of income under the head ‘Capital Gains’ for ‘transfer’ of immovable property.


Beneficial Additions to the Act

Reduced Period of Holding for Immoveable Property for Long-term Capital Gain Benefits – section 2(42A)

Definition of a ‘short-term capital asset’ has been amended to include an immovable property (being land or building or both) held for 24 months or less (instead of 36 months). This reduced period of holding entitles such property to qualify as a ‘long-term capital asset’ faster and the consequential benefits of concessional rates of income tax as well as ‘indexation’ benefits for computing ‘capital gains’ (if any) on transfer of such asset.

Relief for Property Developers – section 23(5)

The above said provision newly inserted and applicable for Assessment year 2018-19 onwards, provides relief to businesses holding immovable property (consisting of any building or land appurtenant thereto) as stock-in-trade, by taking the said ‘annual value’ (for purposes of computing income under the head ‘Income from House Property’) of such property as ‘nil’ in the following circumstances –

  • Such property (or any part) is not let during the whole or any part of the previous year; and
  • Not more than 1 year has elapsed from the end of the financial year in which the ‘certificate of completion’ of construction of the property is obtained from the competent authority.

Indexation ‘base year’ shift for computing Long-Term Capital Gain – section 55

The ‘base year’ for the purpose of computing the ‘cost of acquisition’ and ‘indexation’ thereunder (where applicable) of a capital asset has been shifted from 1 April 1981 to 1 April 2001 with effect from Assessment year 2018-19.

  • This amendment is expected to assist income tax assessees facing genuine difficulties in computing such capital gains in respect of a capital asset (especially immovable property) acquired before 1 April 1981 due to unavailability of relevant or reliable information for computation of ‘fair market value’ of such asset as on the said date.

‘Specified Agreement’ under Joint Development (Builder) Agreement – section 45(5A)

With effect from Assessment year 2018-19, under the above said newly inserted provision, where ‘capital gain’ arises to an Assessee (Individual or a Hindu Undivided Family) from the transfer of a ‘capital asset’ (being land or building or both) under a ‘specified agreement’^, such ‘capital gain’ will be chargeable to Income Tax as income of the ‘Previous year’ in which the ‘certificate of completion’ for the whole or part of the project is issued by the the competent authority.

  • For the purposes of section 48 (Mode of Computation), the ‘stamp duty’ value on the date of issue of the said certificate, of such Assessee’s share (being land or building or both) in the project, as increased by the consideration received in cash (if any) shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the said capital asset.
  • The above shall not apply where the Assessee transfers such share in the project on or before the date of issue of the said certificate of completion, and the capital gains shall be deemed to be the income of the previous year in which such transfer takes place and the other provisions of the Act shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer.

^Specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.

Limitation to Benefits

Set-off of loss under the head ‘Income from House Property’ – section 71(3A)

Under the newly inserted above said provision for Assessment year 2018-19 onwards, the set-off of loss (if any) as computed under the above said head of income against assessable income (if any) computed other heads (as allowed under the relevant provisions of the Act) for the relevant Assessment has been limited to Rs.2 lacs.

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