LTCG claim on house sold on EMI but posession afterwards

Hi,

Hope you are doing well !!

If the new house is sold within 3 years from the date of purchase or construction, then the exemption claimed earlier under section 54 shall be indirectly taxable in the year of sale of the new house property.

In your case, the capital gain of RS 7 lakh will be taxable in the year of sale I.e. FY 2018-19 .

Thanks & Regards,

Payal Chhajed

Yes since you are selling house before 3 years and if you had claimed entire capital gain earned on house A as exemption then cost for new house will be taken as nil while calculating it's capital gain as per section 54(1)(i).

So capital gain for new flat would be sale price.

However since the possession will be transferred in 2023-24 sale would be considered for 23-24 and so you will fulfill condition of 3 years possession.

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Thank you

Hi,

- I think it would be treated as transfer in the year 2023-24 because the very basic condition i.e. transfer of possession of property to buyer is not fulfilled in the year 2018-19.

Thanks

Hi,

Tax treatment will be depend on possession.

As per said situation, you will be transferring the possession in FY 2023-24 i.e. 3 year possession condition will be fulfilled. But it is subject to litigation.

The AO may be consider the same in FY 2018-19.

Your’s is a factual case and would depend on documents and the way transaction is analysed by different professional and Assessing officer.

In an ideal scenario, where a person has claimed capital gain exemption by buying a property, that property cannot be sold for 3 years. IN case you sell it, you are liable for capital gains in the year of sale towards the exemption you claimed earlier.

Now it’s a matter of debate whether you transferred the property in FY 2018-19 or 2023-24. This is dependent on the documents and the facts of the case. To create a case, the documents should be structured strictly to show transfer in 2023-24. Also, there should be clauses on cancellation of transaction and a provision that the buyer has no right what so ever until final payments. Also, much of the proceeds should be received towards the later years. The initial payments must just be shown as token and in dispute. IN such case, it may be possible to portray that sell happened in 2023-24. The tax authorities can definitely dispute that sell was in 2018.

Giving the house on rent to third person has nothing to do wit capital gains. It should be transacted wit third party at the market rate and not with the intended buyer. Transfer of possession is one of the very big criteria to say transfer has effected. While your case may anyyws be litigative and depends on facts - giving house to buyer or his family on rent will weaken the position.

Hi,

Yes, it is possible.

Possession & Rental are two separate things.

looking at the practical scenario, it is advisable that avoid said arrangements.

For capital gains purpose the year of possession is important.

Since you will be transferring the possession in FY 2023-24 i.e. after 3 years of possession, there should not be any issue.

There should be no issue as the flat will be considered to be on rent and the possession will only be transferred after 3 years.

There is no problem you can give house on rent.

Transfer will be considered in the year of transfer of possession only. Renting to family members or relatives will not be treated as transfer. Possession means physical transfer of house to the proposed buyer.

Since you will enter into a rent agreement it would be considered as a rented property and not sale of flat so sale would be considered after 5 years and you won't be liable to reverse your exemption of capital gain so this is the best option.