Hi,
i booked apartment in bangalore in year 2008. let us say cost of apartment was amount X.
i paid almost 85% of amount in 2008. for various apartment got delayed and it will be completed now.
i also paid remaining amount except registration charges during year 2013-2016. I am expecting possession of this apartment in next 1-2 months.
I want to sale this apartment before possession for say amount 1.8X. There are two option to sale this apartment
#1. builder cancel this apartment and pay me 1.8X amount directly
#2. resale of this apartment to new customer and new customer pay me 1.8X
Now my questions are
- since this this apartment will be sold before possession and hence what kind of tax i have to pay
i.e. STCG or LTCG?
- will option #1 and option #2 make any difference w.r.t. STCG or LTCG?
Hi,
In my opinion, the date of allotment of the Property to you by the seller is the date of acquisition of the Property.
So, in your case, 2008 will be the year of acquisition.
Indexed Costs will have to be computed based on the Financial Years in which respective payments were made by you (Either out of own funds or through Bank Loan) and Long-term Capital Gain has to be computed.
Option #1 or #2 will not make any difference from taxation point of view.
Thanks Pradeep, while discussing this with some people they mentioned that normally LTCG applies for property after registration + 3 years and there is ambiguity for sale of apartment before possession/registration and IT officer can take different opinion and consider it under STCG. In Bangalore registration of property happens after completion of project unlike Mumbai where it get registered earlier and hence i am assuming this would not be uncommon scenario. My follow up questions are - How much probability of considering it in STCG by IT officer? - are there previous example or court orders where this kind of case considered as LTCG?
Hi,
As per Section 2(14) of the Income Tax Act, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. There are a few case laws which have held that a right to obtain conveyance of an Immovable Property is the date of acquisition of property for the purposes of taxation.
Below is the extract of relevant para of one such case law in Bombay High Court. Commissioner Of Income-Tax, ... vs Tata Services Ltd. on 16 January, 1979
9. What is a capital asset is defined in s. 2(14) of the I.T. Act, 1961. Under that provision, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The other sub-clauses which deal with what property is not included in the definition of capital asset are not relevant. Under s. 2(47), a transfer in relation to a capital asset is defined as including the sale, exchange or relinquishment of the asset or the extinguishment of any right therein or the compulsory acquisition thereof under any law. The word "property", used in s. 2(14) of the I.T. Act, is a word of the widest amplitude and the definition has re-emphasised this by use of the words "of any kind". Thus, any right which can be called property will be included in the deduction of "capital asset". A contract for sale of land is capable of specific performance. It is also assignable. (See Hochat Kizhakke Madathil Venkateswara Aiyar v. Kallor Illath Raman Nambudhri, AIR 1917 Mad 358). Therefore, in our view, a right to obtain conveyance of immovable property, was clearly "property" as contemplated by s. 2(14) of the I.T. Act, 1961.
Sir yes it will make difference.
1.if u sell it then the gain will be treated as business income or income from other sources as the possession was not taken.
2. If u get back the amount from builder I.e the amount u paid then there is not profit and no tax. If u have taken any loan for purchase then the interest paid will also be taken as cost for arriving at profit .
Dear Sir,
If you sale the property before taking the possession and before registration, it should be LTCG in my opinion.
However you are right. IT officer can take a different view but we can always defend our view before the higher authorities.
Please feel free to call/revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
Dear Mr Abhishek,
have you encountered such case and got it considered in LTCG recently?
somehow to me looks like there is risk that i may have to pay 30% tax if things does not go in my favor.
any such example will help in this matter
Hi,
Yes. 30% Tax on Short-term capital gain amount is the worst possible scenario.
However, in my opinion, the asset is a Long-term Capital asset in your case and you can claim exemption from tax subject to the conditions prescribed therein.
Hello Sir,
In such a case, the ITO will obviously think from the revenue point of view and consider the profit as STCG, whereas you may file an appeal and there is scope of the decision coming in your favour at the CIT(Appeals) or ITAT level.
Though it will involve a lot of time as well as cost.
So you may consider all these aspects and take a call.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Thanking You.
Regards,
Rohit R Sharma
BCOM, ACA, LLB-GEN, CERT. FAFP
Yes Sir, we have considered these types of cases in LTCG.
Please feel free to call/revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com