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Vivek (MCS)     03 February 2011

Long term capital gain-3 years after booking OR possession

Dear experts, 

       A controversial topic on which there i no clear answer. Expert help supported with facts/cases would be much appreciated.

- I booked a residential apt. in dec. 2004(BBA).  Paid 90% of the amt. as lump sum-

- The builder promised 30 months but delayed the project for multiple reasons(land dispute with authority, financial crisis, etc)  .   I am getting the possession NOW in Feb. 2011.  The registry is not open for this society yet.

- I want to sell the flat immediately- assume Feb 2011 as the sell date.

- I already have a residential apt. that I am living in and claim tax exemption on its bank interest.

 

MY questions are:-

1)  Would I be taxed long term or short term on this sale.   Some CA's say it could be long term (since they see booking as the real date and sight transfer of rights as the basis of this).   However most CA's and net research says its short term.   Which is correct.

2) Assuming its long term , should I take formal  possession  for this?   There is a doubt that if I take possession, the right converts to asset  , and then the LTCG   vanishes..  Is there any basis for this? I want to take possession, because then I would be able to claim tax exemption on this house's interest as well, since it would be my second house and I can claim exemption by showing it 'deemed to rent'.

 

3) Assuming, its a short term gain(my bad luck!), can I add the interest paid to banks(~8lakhs) to the cost of the flat, while calculating the capital gain.

 

Thanks for your great help in advance!

 

regards

Vivek



Learning

 4 Replies

Vineet (Director)     03 February 2011

Please refer to following decisions :

Punjab & Haryana High Court in Vinod Kumar Jain vs CIT 195 Taxman 174,

Bombay High Court in Hilla Wadia 69 Taxman 114

MP High Court in Shashi Verma 224 ITR 106

If the flat has been allotted to you, posession is not material and long term capital gain arises. However, in your case there is a twist that the house is still not ready for posession, hence its sale per se cannot be considered as sale of residential house. Still the sale will result in transfer of other capital asset i.e. your right to obtain posession of the said flat, therefore long term capital gain will arise against which you can avail exemption u/s 54F.

1 Like

Vivek (MCS)     03 February 2011

Dear Vineet,

    Thanks for your fast response . I would go through the cases . I hope these are recent ones and available on a common website.

About the twist you mentioned, does it mean that the it would be considered a sale of residential house (for us/54f benefits), only if I get possession of the flat?    As I mentioned , they are offering possession immediately. I am just holding back as I am not sure whether taking possession would still make me eligible for the LTGC(rights to asset conversion theory).  Pls. clarify.  Should I take it or not. One of the reasons I want to take it to avail of the bank interest exemption, but fear that it might not become short term.

 

Thanks

Vivek

Vineet (Director)     03 February 2011

you can take posesion and then sell the flat. latest P&H High Court decision is about that only.

 

The bank interest paid so far will add to cost of flat for computation of capital gain.

Vivek (MCS)     03 February 2011

Hi Vineet,

     The only thing that worries me is the rider "under self financing scheme" mentioned in the begining of P&H case.  In my case, the flat was financed by 80% bank and I paid only initial 10%, of the 90% paid at the booking time.  Would that still be classsified self-financed..  I just wonder if this is not referring to CLP schemes .

Thanks

Vivek

 

financing scheme, an allottee


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