Do you have deemed income?

It was way back in 1961, when the Income Tax Act was enacted, that the government first deemed it fit to presume certain transactions as income, profit or gains in the hands of the assessee. Since then, such provisions have come at the rate of two or three a decade, but there was a gap of six years, since 2003.

Section 56(2)(VII) is the latest, coming into effect from October 1, 2009, taking the total to at least 22. Section 50C has also been amended similarly from October 1, 2009, to create a new thorn. Say you have sold a flat for Rs 20 lakh, but the state authorities assess it as Rs 22 lakh as fair value. The income tax department will now "deem" that you received Rs 2 lakh extra (which you did not) and add this to your taxable income.

You are no better off as a buyer, not only of flats but also of shares, jewellery, drawings, paintings, work of art and archeological items. If the purchase price is seen to be below the value taken for stamp duty in case of immovable property, even if it is not registered, the difference is added to your income. These provisions apply only to Individuals and Hindu Undivided families, and are thus discriminatory.

Sometimes, extra money or any money may not have changed hands, but the government deems an income. Deeming provisions also entail valuation of properties, which opens the door to corruption. The registering authorities are neither qualified engineers nor valuers. They go by street rates or by thumb rule. Inspection of property is rare, so they can't check if the flat or building is in good shape or dilapidated.

Will the government deem it fit to stop this practice?

— Narayan Jain and Deepak Jain (Tax advocates and authors)