Tax for selling unregistered property

Hi , I booked a flat in 2011 under construction and have received  a hand over letter from the builder last week. But I wish to my flat before registering it in my name. How do I do it?  I paid 2400 per sq ft in 2011 and now the current price is 4500 per sq ft --- hence for the profit I make -- How will it be taxed? How much will be taken -- As I do not own the property yet - under which category will it be taxed. Additionally, I had taken a Bank Loan for the amount (From 2011) - Can I claim any tax benefits? In case, I register the propert  in my name - As it has been over 3 yers since I have taken the loan -- What are the tax benefits I can clain(Interest & Principal)Thanks, Vijay
Asked 3 years ago in Capital Gains Tax from Bangalore, Karnataka
In this case the profit will be taxed as income from other source. In case you go for registration you will assessed to Short Term Capital Gain Tax.
Swapnil Patil
CA, Navi Mumbai
29 Answers
4.3 on 5.0
  Talk to Swapnil Patil
The date of handing over possession is the date of acquisition in your case. 

If you wish to sell your property before registering it in your name, what you are selling now is the property which has been handed over to you. Hence, you are likely to be assessed for short term capital gains and not long term capital gains. 

However, if you paid substantial sum in 2011 itself and what you paid at the time of possession is only an insignificant amount, you may try to take up the argument, based upon your payments and the related documents on hand, that the property was acquired by you in 2011 itself. However, this argument may not be accepted by the Income tax department and thus deny you the benefit of long term capital gains. You may need to be prepared for appeals.

The interest paid upto the date of acquisition will be capitalized and allowed as a deduction,under the head : " from House Property" in 5 annual equal installments commencing from the year in which the construction of the property is completed, which is 2015 in your case.  Thus you will be eligible to claim the interest upto the date of possession in 5 equal installments in the financial years 2015-16,2016-17,2017-18,2018-19 and 2019-20.

The repayment of principal will be allowed as deduction u/s 80C subject to fulfillment of conditions specified therein.
B Vijaya Kumar
CA, Hyderabad
833 Answers
5.0 on 5.0
  Talk to B Vijaya Kumar
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. Also you can add interest paid on housing loan to your expenditure which increases your cost. In the present case allotment letter was received by you in 2011 and you have taken Bank Loan.

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.

Shyam Sunder Modani
CA, Hyderabad
1408 Answers
5.0 on 5.0
  Talk to Shyam Sunder Modani
Dear Tax Payer,

Though you are transferring the property before the registration, you have the significant ownership in the property. Also note that your flat is falling within the definition of 2(14) of the Income-tax Act, 1961 as Capital Asset. Hence, you will be taxed under the head "Capital Gains"

You got the ownership (significant amount of consideration paid and Handover letter received) last week. Hence, the asset will be considered as 'short term capital asset' and any gain arising out of it will be considered as 'short term capital gain'. No indexation benefit will be available.

Any interest paid on the cost borrowing will be added to the cost of acquisition. Hence, effectively you can avail the following expenses from the sale consideration:
1. Any cost incurred in transfer of property like brokerage, commission, etc.
2. Cost of acquisition of flat. ie. actual payment made to builder.
3. Interest cost. ie. Interest on borrowed capital paid so far.
4. Cost of improvement like interior work, etc..

CA. Rajeev P T
Rajan Chakravarthy & Associates, Chennai

*****This Opinion is based on stated facts and the legal position as on date. The views expressed may not be relevant where there is any change in facts or law. This Opinion is not in the nature of an assurance that an alternative view or interpretation cannot emerge.
Rajeev P T
CA, Chennai
40 Answers
5.0 on 5.0
  Talk to Rajeev P T

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