Bought property? Here's how to avoid trouble with the taxman

Bought or sold property? There is a good chance the Income Tax (I-T) department will raise queries about it. While the possibilities of illegal transactions abound in such deals, the department's scope for availing documentary evidence through registrars and builders is also quite high. Therefore, a mismatch in the information filed could give rise to your account being scrutinised.

The Central Board of Direct Taxes has notified a new income tax form which no longer requires individuals to record high-value transactions.

However, entities like the registrar continue to intimate the I-T authorities of such transactions through the annual information report they file. Property deals worth Rs 30 lakh or more are considered high value and reported.

Typically, the department is interested in knowing the source of funds used for the purchase.

When the department sends out a notice, you would be expected to furnish the required documents proving the funds are your own and have been accounted for while filing returns.

Those opting for a bank loan will have their bank statements and loan agreements with the bank scrutinised.

The matter could get complicated if you have

taken a loan from friends and relatives. They would be required to produce letters confirming the loan and other documents.

If the department suspects foul play, it would then open their accounts for further verification.  Queries regarding the sale of property are related to the payment of relevant taxes.

Taxes are calculated on the basis of the value determined by the stamp duty authorities.

If the I-T authorities find one guilty of evading taxes, the amount involved is considered as his income and taxed accordingly.

He will end up paying an interest on the taxable amount, along with a penalty equivalent to 100 -300 per cent of the taxable amount.

Usually, the department would send you a notice within six months of the end of the financial year and call for a hearing immediately. However, having the power to reopen cases, the department has been known to scrutinise three-four year-old accounts.

While most cases are resolved earlier, some could go on for seven to eight years. In the worst scenario, it could stretch further if both parties appeal and counter-appeal judgments.

According to tax experts, one sure way to avoid being haunted by the taxman's notice is to keep all property-related documents, especially those revealing the source of funds, safe and secure.