Capital gain tax on flat booked under construction and sale after registry

Hi,

- Period of holding will be considered when you get possession therefore it would be treated as STCG and you can not avail benefit u/s 54. You can deduct the cost of interest if you have not availed the benefit under other sections of the Act.STCG would be 7.60 which will be taxable as per normal slab rate.

Thanks

In your case please confirm that whether any allotment letter was issued in your favour which clearly mentioned that so and so flat number belongs to you. If this is the case then from the date when such allotment letter was issued to you, such flat would be considered under your possession and there is no requirement of getting physical possession or getting registered sale deed. However this is matter of litigation but there are many judgement in favour of assessee where the court have decided that if the allotment letter was issued to the assessee before and the sale deed was Registered on a later date then his period of holding will be considered from the date of allotment letter. One such judgement is with regard to Mumbai ITAT when it gave an order in case of — Anita Kanjani, Mumbai, vs ACIT 23(1) dated February 13, 2017 — in favour of the taxpayer. It helps the assessee to support the position that for determining the period of holding, date of allotment should be considered. You can read the entire judgement online and see whether your facts are same or not.

If yes then you can obviously claim LTCG and take benefit of exemption u/s 54 of the act.

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Thank you

Since you have got the possession only in Aug 2018, the capital gains will be treated as STCG and you can not avail benefit u/s 54. Hope that clarifies

There is no way how you can change STCG into LTCG

Dear Sir,

Hope you are doing well !

The starting date for the holding period also continues to be a matter of litigation because of different rulings from high courts and Income Tax (I-T) tribunals. The most common view, however, is that the date of allotment should be considered for determining the holding period rather than the date of possession. If you dont have allotment letter, take date of registration to calculate capital gain. In your case, it will be treated as LTCG assuming you have got the allotment letter at the time of booking.

A home loan borrower can gain a benefit of tax saving on home loan principal repayment up to Rs.1,50,000 u/s 80C. It means this Rs 1,50,000 will not be counted in the taxable income of the borrower.

Under section 24B, a tax deduction can be applied for payment of interest up to INR 2,000,000 on the home loan in every financial year. The maximum benefit for a self-occupied property is up to 2 Lakhs, whereas if the property is rented out and the owner is residing in another rented house then there is no highest limit of how much of the interest paid can be claimed for the tax deduction.

Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period. Interest paid during this time can be claimed as a tax deduction in five equal instalments starting from the year in which the construction of the property is completed.

Assuming it to be residential property in which construction is going on and further assuming that you have long term capital gain from sale of residential property, you are eligible for exemption under section 54 of Income tax Act 1961 to the extent the capital gain is invested in (If full amount not invested then benefit is available proportionately)

1) Purchase of new residential property within 1 year before or 2 years after the due date of transfer of the property sold.

2) Construction of new house property within 3 years of the date of transfer.

Additionally, the benefit is still available if the amount is invested in an under construction residential property.

Thanks & Regards,

Payal Chhajed

The payment for interior design was made in cash or cheque?

If you have made the payment in cheque then that can be a proof of such payment and if you can get it written by the interior designer on a notarized statement that he has done your interior worth 2 lakh then that can be a proof however I don't think he will do that when he didn't give you any bill.

If you can bring an affidavit of the designer then there is a chance of claiming it otherwise not.

Please ask the queries here and not in feedback column as I have to reply here only.

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Thank you

Dear Sir,

In the absence of bills, you may claim indexed cost of improvement. It wholly depends on the officer and your submission if it gets selected for scrutiny.

The following are the options:

1.Ask for duplicate bills as originals have been misplaced by you.

2.Further payment must have been made by cheque to interior designer.

3.Your account statement would reflect the debits made to your account .

4. Contact a local CA in this regard for claiming deductions.

Thanks & Regards,

Payal Chhajed

Hi Rahul,

Date of issue of an allotment letter gives a right to the taxpayer (Intended buyer) to obtain conveyance on the said flat so that it becomes an asset within the purview of the Income-tax Act. The date of acquisition of the said flat shall be the date on which the allotment letter is issued to the intended buyer.

Accordingly,you can avail the benefits of exemptions by investing in another house under Section 54. You can also avail the exemption by investing your capital gains in bonds under Section 54EC.

Also, you can claim Income Tax exemption on interest payments of up to Rs 2 lakh u/s 24 and another Rs 1.5 lakh under Section 80 C towards the principal repayment for a Self-occupied property.

Hi

It would be STCG as possession taken in July 2018 only.

Since you already executed sale deed so ,no way to come under LTCG now.

Hi,

You can consider interest paid on home loan as a apart of your cost if acquisition. If you consider that, there will be a capital loss.

Further, your case will fall under LTCG only if allotment letter was issued before 2016.

Also, you don't need to invest before September 2018, even if any capital gain arises.

Hi Rahul

Firstly, please let us know the date of allotment. If you have a letter of allotment of 2011, it will be LTCG.

It is only in LTCG that indexation on costs shall be allowed.

For the interest costs, if you haven't claimed any deductions over these years, such interest shall form part of cost of acquisition.

Accordingly, capital gains shall have to be computed.

Section 54 is applicable when you want to claim exemption from capital gains by investing into another residential house property.

In case you don't have letter of allotment, date of possession shall be considered. And it would be STCG. No indexation would be allowed. However, interest deduction shall be provided.

We may discuss the issue further.

Hi,

- At the time of issue of allotment letter, house was not in existence therefore possession of house is deemed as date of ownership.

- Under Income tax, there is no concept of allotment letter even though date of possession is treated as deemed ownership.

Thanks

Hi

No, the benefit cannot be claimed by her. The date of allotment is considered and the date of allotment is beyond the the time frame for reinvestment under section 54.

Now in your earlier query you were in the favour of taking allotment letter date as purchase date and now you are saying to take Registered deed date as purchase because that's beneficial to you. We can't go back and forth like this and change the law as per our benefit it has said that if there is a difference between allotment letter date and registered deed date and if any payment is made before allotment letter (agreement) then it needs to be taken as purchase date.

So I don't think you will be able to take benefit of such flat alloted in 2015.

Because if in future you sell it you will again take its purchase date as 2015 and not 2018 which is wrong.

So I would suggest to invest in another property or bonds.

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Thank you

Hi,

You will not be able to claim the benefit. It is beyond the the time frame for reinvestment under section 54.

Yes, such interest paid on home loan of which no deduction was claimed earlier shall form part of the cost of acquisition of the property.

Make sure you have calculated the indexed cost of acquisition correctly. Index shall be used of the year of payments post allotment letter is received. For any payments prior to allotment, indeed of year of allotment shall be taken.

Considering facts given by you, total COA comes out to be 47 ( 37+10 ) whereas sales consideration is less than 47 lacs. So, in fact you need not invest anything in 54EC bonds because you'll have a capital loss. File the capital loss in the return of income which may be set off / carried forward.

No, LTCG shall not be applicable in this case when the property is gifted to brother.

Hi,

in your case, it is a capital loss so you do not need to invest in anything.

Also, carry forward/set of your losses by filing return.

No, she will not be able to claim the benefit since the date of allotment does not satisfy the time limits as per section 54.

Hi

Benefit cannot be claimed in this case .

Your wife can make the payment now but I won't advice pre payment as it would take away the benefit of deduction of house loan interest also if she makes payment she can show it as loan to you and then can recover it from you.

Yes there will be no capital gain as sister is gifting property to brother but make sure that a gift deed is made because when you register a deed with the registrar for transfer and not show capital gain on same income tax department will raise a query that why such income is not shown so you must have the gift deed to show and same should be mentioned that the property is transferred as a gift and no money is paid.

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Thank you

Hi,

Hope you are doing well !

1. Yes, she can make whole payment to pre close this loan account. However, she will not get the tax benefit on the home loan interest.

2. Yes, Sister can Gift her property in name of her brother ( blood relation ) and NO LONG TERM CAPITAL GAIN TAX will not applicable in this case because it is a Gift.Gift is exempt u/s 56 of income tax act.

Every gift should be supported by a Gift DEED. However, as per the general practice & implementation problem, any gift within the family and by A/c payee cheque may not be supported by any Deed. However, it should be kept in mind that if the amount gifted is quite significant(Huge)or the gift is in some other form (property, vehicle etc), it is necessary to keep a gift deed ready before filing ROI.

Hi,

1. Yes, your wife she pre close the loan account from the sale proceeds.

2. As far as gifting is concerned, there are no capital gains on gifts to relatives.

However, it is recommended that you get a Gift Deed drafted.

Regards,

Nikhil.

Hi,

1.Yes, she can.

2. Yes, you are right.

Please make sure that gift is supported by gift deed.