Nature of capital gain short term or long term
My father had booked a flat tunder lottery system at Kolkata in the year 2008 and has been received the Provisional allotment in the same year. However Flat was ready for possession in the year 2014 . Cost of the flat was Rs. 6.53 Lacs under Installment payment system. Till 2010, he had already paid Rs. 6.30 Lacs on account of appx. 95% of cost and balance Rs. 33000/-along with other charges and Parking fees, registration etc. (appx. 1.47 lacs) was paid by him in the year 2014 when he received Possession of the flat and Letter of possession received in Oct, 14whereas registration of deed was done in March, 2015. Now he wants to sell the property at around 20 lacs resulting capital gain of Rs. Appx. 12 lacs. Now I am confused that whether it will be treated as Short Term Capital Gain or Long Term Capital Gain. Out of total 8 lacs, he had paid 6.20 lacs under instalment before 4 to 7 years but since the Possession of the flat and registration completed recently, whether he will get the benefit of LTCG Taxes(20% taxes) and indexation benefit or liable to pay tax at normal rates under STCG. Please advice. Regards
Asked 3 years ago in Capital Gains Tax from Kolkata, West Bengal
Any asset is treated as long term or short term basis its date of rightful ownership and date of sale. Here in your example the sale transaction will be treated as short term capital gain since the ownership of flat is on March 2015.
CA, Navi Mumbai
To first understand the implication of LTCG or STCG. There should be a Capital Gain and for a Capital Gain there should be a Capital Asset.
As fas as I have understood your case your Capital Asset has arised in 2014-2015. So if you plan in selling the property before 3 years from the Date of Purchase then it will considered as STCG and slab wise tax shall be paid and no benefit u/s 54 can be claimed.
If the above mentioned flat is sold after 3 years from the date of purchase then you can claim benefit u/s 54 as well as Indexation Befits.
CA Rohit R Sharma
The nature of capital gain-short term or long term- depends upon the date on which your father acquired his flat,which he is now planning to sell.
The definition of " transfer" u/s 2(47) of the Income Tax includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act. Now this definition is with reference to the sale of the property and not in the context of the definition of "acquisition". However, extending this definition even for acquisition, the date of acquisition in your father's case shall be in October 2014, when the letter of possession was given by the builder in part performance of his contract with your father.
So if your father is selling your house within 36 months from the date of the possession, i.e., Sept 2017,then it will be short term capital gain.
Tax authorities in India are taking a position on the basis of various judgments, that the facts of the case are given a priority to consider the availment. For instance, to qualify the investment in case of builder flats, the crucial date is the date of allotment of the residential flat and the payment of installment is a follow up action.
Allotment is a sufficient compliance for getting the benefits, even if the taxpayer has not paid all installments due under the said scheme. The provisions of the section are a beneficial provision for promoting the construction of residential house. Thus, the 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.
In the present case the gains will be treated as long term capital gain and you can avail indexation benefit.
The Central Board of Direct Taxes (CBDT) has also clarified that to qualify as an investment for construction under section 54F the crucial date is the date of allotment of flat by an institution and payment of installments was only a follow-up action and taking possession of the flat is only a formality.
Thanks for your reply. But if you see that Provisional allotment was made before 3 years, however actual possession received & property registered in current year. Whether Provisional allotment date will not be considered for ascertaining the capital gain status.
Asked 3 years ago
Provisional allotment does not mean handing over possession. It is only a statement of intention to transfer the property to you subject to fulfillment of conditions specified in such provisional allotment. Hence, it cannot be treated as an evidence for the transfer of the property in your name, as it is not possible to interpret Section 2(47) in this manner. We can stretch the definition but this interpretation will most likely result in litigation and you will have to try your luck in appeals.
yes provisional allotment date will be considered for ascertaining capital gain status.
If you see my previous mail I have mentioned that the date of allotment is crucial and registration and possession is only a formality.
Thus the provisional date of allotment is to be taken for ascertaining capital gain status and not the date of registration.
No Provisional allotment date won't be considered for computation of capital gain. Legally there is no concept of provisional allotment/ownership, law goes by final ownership status which is supported by legal paper.
CA, Navi Mumbai
Actual date of registration is relevant for computation of LTCG/STCG.
As your father has purchased flat in the lottery and got the allotment letter in the year 2008. so if you sale the flat in the year 2015 the tax will be under LTCG and not STCG. There are many case laws which are supporting that allotment letter is a proper document for purchase of flat.
In the case of Capital gain arising due to transfer of the capital assets , the period of the holding of the property is important . In this case you got possession letter in October 2014 so the period of holding will start from there . So the provision allotment and registration of the house property is not important . From above it seems that it is short term capital gain .
CA, New Delhi Area, India