Introduction
Are you looking to understand about Understanding Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961?
This detailed article will tell you all about Understanding Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961.
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The Income Tax Act, 1961, is the primary legislation governing the taxation of individuals and entities in India. The Act contains various provisions that regulate the taxation of different types of income and assets. One such provision is the Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961.
This provision applies to the transfer of certain assets, other than capital assets, by certain taxpayers. It mandates the computation of the taxable income on the full value of consideration received or accruing as a result of such transfer, irrespective of the actual consideration received. The provision aims to prevent tax evasion by curbing underreporting of income arising from the transfer of these assets.
In this blog, we will delve deeper into the Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961 and explore its various aspects.
Applicability of Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961
The Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961 applies to the transfer of the following assets:
- Land or building or both
- Land or building or both and any other assets
- Shares in a company other than a listed company
The provision applies only if the transfer of these assets is made by a person who is not an individual, i.e., a company, a partnership firm, or any other entity. Additionally, the provision is applicable only if the transfer is not made in the course of regular business.
For instance, if a real estate company sells a property that it has held as an investment, the provision will apply. However, if the company sells a property as part of its regular business of real estate development, the provision will not apply.
Computation of Taxable Income Under Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961
The taxable income arising from the transfer of assets covered under this provision is computed as follows:
- Full value of consideration received or accruing as a result of the transfer
- Actual consideration received or accruing as a result of the transfer
- The higher of the two values mentioned above
For instance, if a company sells a property for Rs. 50 lakhs, but the stamp duty valuation of the property is Rs. 60 lakhs, the taxable income will be computed based on the higher value of Rs. 60 lakhs. The company will have to pay tax on the capital gains arising from the sale of the property based on the higher value of consideration received.
Exemptions Under Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961
Certain exemptions are available under this provision. The following transactions are exempt from the purview of this provision:
- Transfer of an asset by a company to its subsidiary or holding
- Transfer of an asset by a partnership firm to its partner
- Transfer of an asset by a company to its joint venture
- Transfer of an asset by a company to a wholly-owned subsidiary
- Transfer of an asset by a cooperative society to its member
- Transfer of an asset by a member to a cooperative society
- Transfer of an asset by a closely held company to another closely held company
These exemptions are provided to promote ease of doing business and to ensure that genuine transactions are not subject to the stringent provisions of this section.
FAQs
Q. What is the objective of the Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961? A. The objective of this provision is to prevent tax evasion by curbing underreporting of income arising from the transfer of certain assets.
Q. What assets are covered under this provision? A. This provision applies to the transfer of land or building or both, land or building or both, and any other assets, and shares in a company other than a listed company.
Q. Who does this provision apply to? A. This provision applies to entities such as companies, partnership firms, and other entities that are not individuals.
Q. Are there any exemptions available under this provision? A. Yes, certain exemptions are available, including the transfer of an asset by a company to its subsidiary or holding, transfer of an asset by a partnership firm to its partner, and transfer of an asset by a company to its joint venture, among others.
Conclusion
The Special Provision for Full Value of Consideration for Transfer of Assets Other than Capital Assets in Certain Cases Section 43CA of Income Tax Act 1961 is an important provision that aims to prevent tax evasion by curbing underreporting of income arising from the transfer of certain assets. The provision applies to entities such as companies, partnership firms, and other entities that are not individuals and covers assets such as land, building, and shares in a company other than a listed company.
The provision mandates the computation of taxable income on the full value of consideration received or accruing as a result of the transfer, irrespective of the actual consideration received. However, certain exemptions are available under this provision to promote ease of doing business and to ensure that genuine transactions are not subject to the stringent provisions of this section.
In conclusion, taxpayers must be aware of this provision and comply with its requirements to avoid any legal or financial implications.
Section 43C, of Income Tax Act, 1961
Section 43CA, of Income Tax Act, 1961 states that
(1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer:
Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and 6[ten] per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration:
7[Provided further that in case of transfer of an asset, being a residential unit, the provisions of this proviso shall have the effect as if for the words “one hundred and ten per cent”, the words “one hundred and twenty per cent” had been substituted, if the following conditions are satisfied, namely:—
(i) the transfer of such residential unit takes place during the period beginning from the 12th day of November, 2020 and ending on the 30th day of June, 2021;
(ii) such transfer is by way of first time allotment of the residential unit to any person; and
(iii) the consideration received or accruing as a result of such transfer does not exceed two crore rupees.]
(2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation to determination of the value adopted or assessed or assessable under sub-section (1).
(3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer on the date of the agreement.
(4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or a part thereof has been received by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed8 on or before the date of agreement for transfer of the asset.
9[Explanation.—For the purposes of this section, “residential unit” means an independent housing unit with separate facilities for living, cooking and sanitary requirement, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through an interior door in a shared hallway and not by walking through the living space of another household.]