I signed an agreement to buy an under construction flat on 6th May 2022. I have now decided to sell that flat before taking possession. How will the tax be calculated in such a case? Will it still be treated as short-term capital gain even if two years have already passed from the date of agreement? Can I save tax if I invest in another residential property?
Answer: Balwant Jain, read what the tax expert has to say
In my opinion, by paying for an under construction property, you get the right to “own” the property, which is different from rights over the property.
If the property is sold before taking possession, any profit made will be treated as capital gain. If you transfer this right within 24 months then the capital gain will be long term otherwise, it will be short term capital gain. The cost of acquisition of this right is the total agreement value less the amount outstanding on the flat, if any.
If you sell it after taking possession then your right to get the flat turns into rights in the flat. The period for calculating the holding period once again starts from the date you take possession, although there are differences in this matter as some income tax jurisdictions have taken the stance that if the unit is identifiable then the date of acquisition is the date of allotment issued by the builder. There will be a date. Acquisition cost is the total payment made to the builder which includes stamp duty and registration fees.
Yes, you can claim exemption under Section 54F on long-term capital gains by investing the net sale proceeds to purchase another residential property within 2 years from the date of transfer. If you do not invest the total sale proceeds then the available exemption will be reduced proportionately. If you go for an under-construction property or self-construction, you get an extended period of three years from the date of sale of the property. Please note that if the funds are not completely utilized before the due date of filing your ITR i.e. generally 31st July 2025, you will be required to deposit the unused funds in a capital gains account to be opened with a scheduled bank . This money can be used to acquire the property or make payments to the developer. The acquisition/construction should be completed within the stipulated period.
If you do not want to invest in another residential house property, you have the option to pay tax at the rate of 12.50% on the difference between the selling price and your indexed cost, or the difference between the selling price and the indexed cost. There is an option to pay tax at a flat rate of 20%, provided you are a resident taxpayer.
(The views expressed by the expert are his own. Please email us your investment related queries at askmoneytoday@intoday.com. We will answer your queries by our panel of experts)