How are the profits from transferring an under-construction property before taking possession taxed? | Mint

I booked a flat for ₹80 lakh in May 2022 and paid ₹70 lakh for the instalment cost. When the building was ready for possession in October 2024, the builder asked for the last instalment of ₹10 lakh. I found a buyer (with the builder’s assistance) willing to buy this flat. The buyer is ready to pay me the last instalment directly to the builder at ₹95 lakh. What is my tax liability?

By booking the flat, you have a right to own a flat. The cost of acquisition of this right is ₹80 lakh. The fact that you have not paid the entire sum is immaterial and inconsequential. If the transaction goes through before the possession is taken, your profits would be taxed as long-term capital gains as the right in the property was acquired more than two years ago.

The full value of consideration received is ₹1.05 crore. Here again, the fact that ₹10 lakh is paid directly to the builder by the new buyer is immaterial. This is paid on your behalf and is equivalent to you having received the amount directly and then paying it to the builder.

Capital Gains Tax Explained for Flat Sale After Two Years of Booking

Had you paid the last instalment to the builder and sold it immediately after taking possession, your profits would have been treated as short-term capital gains, as your right in the flat would have been converted into the residential flat itself. The acquisition cost remains at ₹80 lakh, and since you would not have held this new asset for over 2 years, your profits would be treated as short-term capital gains, which would be charged to tax at normal rates applicable to you. This is illogical and inequitable.

Some tax tribunals have held that by booking the flat, you acquire a right in the flat itself, and the situation does not change after taking possession. Thus, such profits, even after possession, should be treated as long-term capital gains if sold two years after booking.

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Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant his X handle.

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