Does builder registering flat after 30 years require to pay LTCG tax?

This is a question more related to law and how the deed is registered rather than income tax.

As far as income tax goes for a buyer you had the sale agreement and you were also having the possession of the house so technically you can take your possession date from 1988 just because deed was not registered doesnt mean you are not the owner of the house there are many case laws on it but 30 years is a bit too long for these.

However if you show that the house is registered by you now you are definitely at a loss because first builder is asking you to pay his capital gain which is not right as this was his responsibility back then also and there can also be some problem for you when you sell this property as this will be your date of purchase.

Now if you go on to calculate capital gain as per the figure provided by you the capital gain would be around 350000 and tax on same would be around 70000.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

For the purpose of LTCG, transfer of property is important. By transfer of property, the beneficial ownership changes hands, whether or not it is evidenced by a sale deed, as long as there is circumstantial evidence for such transfer of beneficial ownership. Now from Income Tax point of view, the buyer is enjoying the beneficial ownership of property since 1988 even though there is no sale deed. 

Under Transfer of Property Act, transfer of an immovable property has to be registered. The registered deed is the prima facie evidence for the transfer of property. 

Now we can take the stand that the transfer of property under the Income Tax was complete in 1988, when the buyer acquired beneficial ownership. 

Now that the registration is to be done, the seller may have to offer the property for LTCG, if he did not offer the profit or loss on the sale of such building in 1988. He may therefore be asking for reimbursement of LTCG, as he can offer such LTCG now. The builder still can deny any LTCG now as he did not receive any rental income and the property tax is also paid in the name of the beneficial owner. 

In my view, the builder can take the stand that there is no LTCG but the IT Department may not accept it during assessment stage and he may have go to appeal, as the amount involved is significant. If he wants to buy peace,he may pay LTCG and then be done with it.

In case the builder wants to pay LTCG, the cost of acquisition is the market value as on 1st April 2001. As he the property is in the nature of a flat, the cost of acquisition will be on the basis of sft,  Hence, his cost of acquisition for the flat as on 1st April 2001 is Rs.36,900 (123 Sft @ Rs. 300/- sft). His indexed cost of acquisition is about Rs. 1.1 lakhs His sale consideration at market value is Rs. 3,07,500/-. He will have LT CG of about Rs. 2 Lakhs. The tax liability will be about Rs. 40K. Thus his tax liability may not be more than Rs 50K. 

The critical point for the determination of tax liability is the sale consideration as per the sale deed to be executed now.  How much the property value? Is it based upon sft or sq.yd?

I hope my answer satisfies your query.

Hi,

- Under Income tax, once the buyer took possession of the property and paid the entire or substantial sale consideration to the seller then the buyer is deemed as the owner of the property. The essentials of the sale transaction are 1) Mutual agreement 2) competent parties 3) Money consideration 4) transfer of the absolute or general property from the seller to the buyer.

- The builder was liable to pay tax on the LTCG in the year 1988.

- LTCG would be Rs. 17.45 lacs and tax would be 3.62 lacs.

- Yes builder is required to pay the tax.

Thanks

Hello,

As per the Income Tax Act, Capital gain arises on the transfer of the property, i.e. when the beneficial ownership of the property is transferred, whether or not the said transfer is registered.

Your builder was liable to pay capital gain in 1988 when the beneficial ownership was transferred. Now in 2019 if the builder and buyer register the transfer, whether the builder will be liable to pay tax as per capital gain in the year 1988 or today would be a matter of litigation.

Now if the builder pays LTCG tax, the Capital gain would be Rs. 17.45 Lacs (approx.) and tax on it would be around Rs. 3.6 Lacs.

I hope this answer satisfies your requirement.

Regards,

CA Hunny Badlani

Dear Sir,

To calculate the capital gain sale deed is not only criteria. Event effective handover of possession of property amount to transfer and trigger capital gain.

So effectively the builder will not be subject to capital gain transaction right now for the purpose of builder the flats are deemed to be sold when effective possession was handover

Hi,

Hope you are doing well !!

Transfer does not mean only registration, transfer could be done without registration.

The builder was liable to pay the taxes in 1988.

LTCG would be Rs. ~17.45 lacs and tax would be ~3.62 lacs.

Hello Sir,

Builder was required to pay the capital gain tax at the time of transfer of property i.e.1988.

Hi,

Ideally there is no capital gain to the builder as he has sold the property in 1991 and paid tax in that year.