I have purchased a residential flat and paid an instalment over the last 10 years. The first instalment was paid in 2013, the agreement was signed in 2015, the actual possession was offered and the conveyance deed registered in 2018, and the property was sold in 2018. Will the profit be long-term capital gain (LTCG) or short-term capital gain (STCG)?
—Rakesh Chaudhary
Where a residential property is held by an individual for more than 24 months immediately preceding the date of transfer, any capital gain arising from transfer of such property is considered as LTCG. Else, the gain arising from transfer of such property shall be considered as STCG.
While it is not clear from the facts above, it is assumed that the flat was under construction at the time of payment of first instalment in 2013, and the construction was completed only in 2018, following which possession was offered and a conveyance deed was registered. It is, therefore, relevant to determine the date of acquisition, from which the period of 24 months is to be counted for the purpose of determining the capital gains.
Judicial precedents have provided varied judgments in respect of the date of acquisition for an under-construction property and this has been a matter of debate, particularly in the light of various real estate arrangements prevalent in the market. While few rulings have considered the date of possession as the date of acquisition of the property, a few other rulings have considered the initial booking/allotment date as the date of acquisition. Depending upon the type of the asset sold (i.e. whether the same is right to buy a property or a property itself), the period of holding depends on various factors like what is the date of possession, what is the date of completion of construction in regulatory authorities records, when was full payment made to the builder, did one have an unfettered right/obligation to buy the property or could he cancel the transaction etc. Hence, the exact facts and documentation will need to be examined to determine the date of acquisition of the asset sold.
In the instant case, as the asset being sold is a completed flat (and not just a right in the flat), STCG should arise if the flat is sold within 24 months post acquisition of the flat, i.e., the date from which you received an unfettered right to the flat, which may likely coincide with the possession of the flat on making the full payment. However, in case there is any document that irrevocably binds you as the owner of the property or gives you an unconditional right to the property, pending the possession/full payment, the same may be construed as the date of acquisition of the flat, subject to actual examination.
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Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com