Last updated. 25th May, 2014
Over the years, property is one of the high ticket items in one’s investment portfolio. Now the buying / selling are more frequent with good appreication. However, the investor needs to consider taxation aspects when buying & selling properties.
For long term capital gain, tax liability is determined based on indexed cost of acquisition and improvement. Check – Cost Inflation Index & Calculation
Date of Acquisition of Capital Asset
1) Completed Ready to Move Properties (Residential / Commercial / Land etc)
Date of Acquisition – will be Date of Sale deed registration
2) Under Construction Properties (Important to Read)
If the property is under construction, you don’t have the physical property yet. What you have is “RIGHT TO ACQUIRE” a particular property.
When you book a flat, you pay a token amount as Booking amount for which a receipt will be issued by builder. Once the layout is finalised, letter of allotment is issued and an agreement to purchase is executed and registered.
If you have merely booked a flat in the building to be constructed with no particular flat having been allotted to you, you cannot be said to have acquired the right to purchase a specific flat.
It is only when the letter of allotment is issued that such a right can be said to have come into existence. The purchase agreement defines the rights between the parties, which have already come into existence after the issue of the letter of allotment.
Thus, the date of issue of an allotment letter gives a right to the 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 asset (“Right to Acquire”) shall be the date on which the allotment letter is issued to the intended buyer.
Normally, in cases of sale of under construction properties, a tripartite agreement is entered into between the seller (who had originally booked the flat), the purchaser and the builder. Under this agreement, the seller assigns his rights to the under-construction flat to the purchaser with the consent of the builder, the purchaser agrees to pay the balance of the original purchase price payable to the builder and the builder agrees to give possession of the ready flat to the purchaser directly.
The agreement assigns the right to acquire a particular flat.
IMPORTANT NOTE – Once the possession is given, then the new date of Sale deed registration of property will be treated as New date of Acquisition, as now you will have a NEW Asset.
So if you intend to sell property in near future, it is better to sale before possession / deed registration. Otherwise, you will have to wait for another 3 years to get benefit of Long term capital gain.
How to Save Capital Gains Tax on Sale of Property in India
a) Invest in a Residential House (Buy / Construct) (Under section 54F)
The seller of the property can claim for tax exemption if he buy another essential property. However, the amount of investment & exemption depends on the type of Capital asset sold.
If Capital Gains is from Sale of