Advance money forfeited - Section 56(2)(ix) - Income Tax - Ready Reckoner - Income Tax

Section 56(2)(ix) ADVANCE MONEY FORFEITED Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if, such sum is forfeited and the negotiations do not result in the transfer of such capital asset shall be taxable in the hands of seller as Income from other sources. Notes: Any advance or other money forfeited before 01-04-2014 shall be dealt with as per section 51 , i.e. reduced from actual cost, WDV, etc. Any advance or other money forfeited on or after 01-04-2014 shall be treated as Income from Other Sources and shall not be reduced from Actual cost of the Asset. TAX TREATMENT IN THE HANDS OF THE BUYER The amount paid by the buyer which has been forfeited, does not amount to relinquishment of a right and therefore would not be allowed to be claimed as a Capital Loss. If the seller fails to honour the deal, and pays back the buyer, the advance as well as some amount because of failure to dishonor the deal, then such amount shall be treated as Capital Gains because it amounts to relinquishment of a right by a buyer. The amount forfeited which was paid for purchase of a Commercial Building, will not be regarded as Capital Loss.