Here is the brief background. 1. Flat bought by our father on 30/4/1977in a Mumbai Cooperative Housing Society. Original carpet area was 750 Square feet. 2. It was transferred to me and my brother (in equal share) on 16/10/2010 by the Society based on our father’s will after he passed away. 3. The building had to be demolished as it was structurally unsafe sometime in 2020. A DA with developer was signed and registered on 18 August 2021. This DA was structured such that the ownership of the land remained with the Society and its members. The society only transferred Development Rights (TDR) to the builder to construct new flats. He was given full rights to sell additional flats and keep the proceeds to himself AFTER handing over the members’ new flats. All Members received 26% Extra free carpet area as part of the DA. 4. PAA (Permanent Alternate Accommodation) agreement was signed by us and registered on 6 September 2022 – additional carpet area of 26%. New carpet area 945 square feet. 5. The builder is expected to hand over the completed flat (OC ) in March 2024. 6. My brother and I would like to sell the flat immediately after taking possession of it. 7. What would be the capital gains implications for us? Will the entire area of 945 square feet be subject to Long term gain or only original 750 square feet be subject to LT gain and the balance 195 square feet be subject to Short Term gain? For this purpose what would be the Capital Gains tax implications and how would the acquisition cost be determined? Would appreciate your guidance on this. I would like to add that I am an OCI/NRI and my brother is an Indian resident.
- Sale of 945 sqft would be LTCG
- COA would be actual cost of acquisition paid by your father or Stamp duty value of the property as on 01.04.2001 whichever is higher
- In case of NRI status- At the time of sale, buyer would be liable to deduct TDS @20% (+surcharge if applicable) + Ed.cess @4% on the sale consideration amount. For lower/NIL deduction, you have to apply for lower deduction certificate
For detailed discussion you may opt for phone consultation
Thanks for your response. You have said that entire 945 sq ft would be subject to LTCG. I am a bit confused. Out of 945 sq ft , 195 sq ft was given free of cost and would be given to us when OC is issued. Would not the 195 sq ft be Short term capital gain with zero cost?
- The holding period would be considered from the date of the purchase of the original asset i.e. 30.04.1977. COA would be considered only for 750 sq.ft.
- If you sell it in the same F.Y. (i.e. when you get the completion certificate) then the LTCG would be Net Sale consideration less Indexed COA. If you sell it in different F.Y. then point of taxation would arise two times, firstly at the time of getting CC and secondly at the time of sale of the flat.
At the time of CC, LTCG would be Stamp duty value of the flat less ICOA
At the time of sale, LTCG would be Net sale consideration less Stamp duty value of the flat
For detailed discussion you may opt for phone consultation
Capital Gains Type: The entire 945 sq ft (including the additional 195 sq ft) is subject to Long-Term Capital Gains (LTCG), since the property has been held for more than 36 months.
Cost of Acquisition: The cost for the original 750 sq ft will be based on its value at the time of inheritance, adjusted for inflation (indexation). The additional 195 sq ft, although received without a separate cost, is part of the redevelopment agreement and included in the LTCG calculation.
Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.
Thank you.
Shubham Goyal
