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If the document is properly worded, the sums received from the builder could be classified as a capital gain, which would result in a lower tax outgo for the buyer.
“A ‘transfer’ of a capital asset results in a capital gain. The definition of ‘transfer’ in section 2(47) of the I-T Act is wide. It also includes ‘the extinguishment of any rights in a capital asset’. At the time of booking, the buyer acquires a right in the ownership of the flat. When he settles with the builder he is extinguishing this right. Thus, the amount paid to him is characterised as sale proceeds of the capital asset,” .
“The sale proceeds so received, less the indexed cost, in the case of a long term capital asset, would be a long term capital gain (LTCG), which attracts a lower I-T rate of 20% plus surcharge and cess,” .
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