Can you get tax benefits on selling a house that is not registered?
Premium- Income tax tribunals have referred to the circulars and ruled that buyers can be considered property owners once they pay a token amount and receive the allotment letter
Sometimes, buyers don't do the registration of their houses. The reasons vary: to save costs associated with stamp duty and registration; some keep postponing it once they start living in the house. There are rare cases where the developer doesn't cooperate, delaying the process.
What if you decide to sell a house that is not registered? Will you be able to claim benefits available under long term capital gains, and what purchase date you should consider in such a case for calculating capital gains?
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A property is considered a long-term capital asset if the buyer holds it for more than 24 months. There are two Central Board of Direct Taxation circulars that offer guidance on such matters. According to the circulars, an allottee gets the title of the property when the developer issues an allotment letter. Balance payment, possession letter and registration of a flat are formalities that follow.
Income tax tribunals have referred to the circulars and ruled that buyers can be considered property owners once they pay a token amount and receive the allotment letter.
Explain Naveen Wadhwa, a chartered accountant and deputy general manager at Taxmann.com: "If a buyer gets the right to purchase the house, it will be a capital asset that will belong to him. When he sells the right, it will be capital gains. The ownership begins the day a buyer receives an allotment letter, which talks about the details of the house and payment."
However, it's always best to complete the registration of the property. The CBDT circular is more of a guideline - it's not part of the regulations. Some other laws and regulations, like The Registration Act, the Indian Stamp Act and the Transfer of Property Act, require the property to be registered.
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