Anita (Managar)     23 March 2013

# Ltcg on flat sale

here is the situation for which i need  some clarification. Any genuine answer is highly appreciated.

1. i bought a  flat i.e. did an REGISTERED AGGREEMENT TO SALE in 20th June 2006 in PUNE for around 42 lakhs. It was on BANK LOAN mostly : 85% loan and 15% from my pocket. I stared paying my EMI from July 2006 onwards.

2. I got the POSSESSION for the PUNE FLAT on Jan 30th 2007.

3. I bought another flat on loan in BANGALORE in June 2009. This was registered on June 2009. This was again on home loan mostly 85% home loan and 15% from pocket. The total amopunt was aorund 57 lakhs.

4. I sold the PUNE flat in 20th August 2009 for around 52 lakhs and closed the bank loan. And whatever amount i made i put into the loan for the BANGALORE FLAT and my father's treatment.

So, my question is:

1. is the income i made from selling the PUNE flat LTCG ? And what is the period of holding calculation for the flat ?

2. Is it from the date of REGISTERED AGGREMENT to SALE ie.e 20th June 2006 or from Date of POSSESSION ie.e 30th Jan 2007 ?

3. what is the indexation factor and how much taxes would i need to aoy roughly base don above figures.

Any help is highly appreciated.

Rama chary Rachakonda (Secunderabad/Highcourt practice watsapp no.9989324294 )     23 March 2013

To calculate this actual gain, the Income Tax department releases a cost-inflation-index (CII) figure every year. Usually, in May, it will release the CII for the last financial year - so the CII for 2010-11 will be released in May 2011. And it's not easy to find; but luckily enough people get to know.

Effectively, the cost of acquisition becomes substantially lower. The formula is:

Indexed Cost of Acquisition = (Actual cost of purchase) * (CII Of Year of Sale)/(CII of Year of Purchase).

Capital Gain = (Sale Price MINUS Indexed Cost of Acquisition).

Capital Gains Tax = 20% of Capital Gain

For example, if you bought 1000 units of a debt fund at Rs. 50 per unit in 2008-09 and sold the 1000 units in 2009-10 for Rs. 55, then:

(Purchase Price = Rs. 50,000 and Sale price = 55x1000 = Rs. 55,000)

a) Indexed Cost of Acquisition = 50,000 x (632/582) = 54,295.

b) Capital gain = 55,000-54,295 = 705.

c) Capital Gains tax = 20% of 705 = Rs. 141.

The indexation benefit allows you to let inflation take its toll on the purchase price; there is no such allowance for "short term" capital gains, in a mutual fund or stock sold within a year of purchase. In that case, the gain (non-indexed) is simply added to your income and your income is taxed appropriately, and that effectively means short term capital gains are taxed at the highest slab that applies to you.

The indexation benefit also substantially increases your post-tax return when you use a mutual fund rather than, say, a fixed deposit. The mutual fund is indexed for inflation, but the FD return is not (even the annual interest for a multi year deposit is added to your gross income and taxed)

Anita (Managar)     23 March 2013

hi, my question was :   how is the period of holding calculation for the flat calculated ? Is it from the date the Agreement to sale was REGISTERED in land registrar office ie. 20th june 2006 above  OR is it from the date of possession i.e. 27 jan 2007?  thank you.

Dr. M. C. Gupta (Associate Professor)     24 March 2013

Logically it should be from the date on which the Agreement to sale was REGISTERED in land registrar office ie. 20th june 2006 and NOT   from the date of possession i.e. 27 jan 2007?

Because suppose you had an agreement to tansfer it just the next month viz. in JUly, 2006, earning the STCG of Rs 3,00, 000 does it mean you will not become liable for maing payment og STCG Tax? I am sure you will be so liable for STCG Tax as per the provisions of he IT Act 1961.

With the same logic, for calculation of the LTCG the date of acqidition shall be taken as the date on which the Agreement to sale was REGISTERED in land registrar office ie. 20th june 2006 and NOT  from the date of possession i.e. 27 jan 2007?

So the period of retention comes to be 38 months which is more than 36 months which qualifies any capital asset to be a Long Term Capital Asset.

Indexation of Cost of Aquisition is allowed only in case of Long term C. Asset.

CII for the for the Financial/Previous year 2006-07     is    519:  And CII for the Financial/Previous year 2009-10  is 632.

Indexed Cost of Acqisition   =

Indexed Cost of Acquisition = (Actual cost of purchase) * (CII Of Year of Sale i. e. 632)/(CII of Year of Purchase i.e.519).

LTCG      =   Net sale Consideration Indexed Cost of Acquisition

Dr. M. C. Gupta (Associate Professor)     24 March 2013

Logically it should be from the date on which the Agreement to sale was REGISTERED in land registrar office ie. 20th june 2006 and NOT   from the date of possession i.e. 27 jan 2007?

Because suppose you had an agreement to tansfer it just the next month viz. in JUly, 2006, earning the STCG of Rs 3,00, 000 does it mean you will not become liable for maing payment og STCG Tax? I am sure you will be so liable for STCG Tax as per the provisions of he IT Act 1961.

With the same logic, for calculation of the LTCG the date of acqidition shall be taken as the date on which the Agreement to sale was REGISTERED in land registrar office ie. 20th june 2006 and NOT  from the date of possession i.e. 27 jan 2007?

So the period of retention comes to be 38 months which is more than 36 months which qualifies any capital asset to be a Long Term Capital Asset.

Indexation of Cost of Aquisition is allowed only in case of Long term C. Asset.

CII for the for the Financial/Previous year 2006-07     is    519:  And CII for the Financial/Previous year 2009-10  is 632.

Indexed Cost of Acqisition   =

Indexed Cost of Acquisition = (Actual cost of purchase) * (CII Of Year of Sale i. e. 632)/(CII of Year of Purchase i.e.519).

LTCG      =   Net sale Consideration Indexed Cost of Acquisition

It should be noted that agreement of sale is different from sale deed.  Agreement to sale  is only an agreement by both the  parties to execute sale deed with the terms mentioned in that.  so you have not mentioned whether the sale deed is registered in the register office or sale agreement is registered nd hence check your selves...The date to be considered is only sale deed not agreement. to sale....

gaurabp (engineer)     25 March 2013

Hi sir,

only the AGGREEMENT TO SALE was REGISTERED in the Land REGISTER office in 20th June 2006. There was NO SALE DEED made. THE bank loan was approved on AGGREEMENT TO SALE  and i started paying full EMI from July 2006.

The builder did NOT GET COMPLETION CERTIFICATE and so he gave a TEMOPRARY LICENSE to DO INTERNAL WORK in the FLAT in Jan 2007. The builder did NOT GIVE POSESSION CERTIFICATE. So, when i sold  the FLAT in 2009, the new buyer and myself and builder did a DEED OF ASSIGNMENT in August 2009.

Dr. M. C. Gupta (Associate Professor)     26 March 2013

Thank you very much sirs, for comments on my response.

I think , we should not strict to the point that the Capital gains is related to the 'flat' only. Actually it relates to any ' as defined in S.2(4). as "Capital Asset" means any property of any kind...".. In my view any valuable right e.g. goodwill, preemted right of existing shareholders, to purchase the shares of any company  at concessional rates. Even the explanation to the said section clarifies that even "...a right in a co. in relation to any company.." is 'property'. The Asset/right should be of value to be fatched in monetary terms or otherwise, may it has any cost of acquisition or not.or may the full payment was made at the time of acquisition. In this case the agreement was for 42 lakhs i.e. CII pad or payable in installment.

The agreement to sell is also a right/property under the definition of "capital asset" in section 2(4). The sae consideration may not be for the transfer of 'flat', because what you do not own you can not transfer it (flat). But certainly you had a valuable right/property to transfer for consideration and you did it for the consideratin more than or less than the Cost of acquisition; that is immaterial brcause you will have gain or loss on transfer.

Ome more thing is that the agreement to sell is done in case of Hire Purchase also.technically, yhe hirer is not vthe owner but still the asset under hire purchase agreement is sold not as transfer of ownership bu transfer of some right/property/capital asset. such transfer is also subject.

So as the right/property is a capital asset and the date of acquiring such right is the date 20th June, 2006 w,e,f, which the period of holding must be counted.

Anita (Managar)     26 March 2013

Thank you Sir. We were given only a TEMPORARY LICENSE to do Internal work in Jan 2007. We did NOT GET POSESSION LETTER. THe builder has still NOT GOT COMPLETION CERTIFICATE because of deviations from sanction plan.

Thank you sir for your help.