Supreme Court puts an end to tax evasion in land and property deals

In a monumental decision by the Supreme Court this week, land and property owners can no longer evade taxes levied on land, redevelopment rights, and property transactions by creating partnerships firms. Last week, the apex court ruled that revaluation surplus in a partnership will no longer be exempt from taxation such as capital gains tax. Catapulted by this decision of the apex court, the IT department is likely to now shift its focus and scrutiny to property deals as well.

Common practice up until now has been for individuals holding real estate assets in a partnership structure to evade capital tax via simple restructuring. Partners would revaluate the properties to the current market price, bring in new partners who infused cash in the firm and then allow old partners to exit with the funds that have come in after their capital accounts were credited to the account of their share in the profits of the firm. This was legally accepted within the laws that govern the formation of a partnership firm in India. With the new ruling, firms facing a tax liability post revaluation will force the original owners of the property to pay the tax if they wish to take the funds infused by new partners out of the firm.

Next (IFC partially exits with an IRR of 20% from Puravankara Project)

Supreme Court puts an end to tax evasion in land and property deals

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