How to avoid short term capital gains tax
I have been allotted my property on 2008 from builder, which was paid in 100% upfront to the builder. During that time when it paid in full, it was under construction, Subsequently I got possession on 2013, and eventually sales deed registered in my name on 2014, now if I sell my property in 2015, whether 3 years shall be counted from date of registration or date of possession or date of allotment in order to avoid STCGT? In my case whether I need to pay tax under STCGT or LTCGT?
Asked 3 years ago in Property Law from United Kingdom
1) the date of acquisition of the rights would depend upon facts of each case and the documents executed / provided by the developer to the intended buyers. In case of initial advance if there is no commitment or allotment by the developer, same may not amount of acquisition of rights in the property. Property rights may generally be acquired by the intended buyer only when an allotment letter specifying the project etc. has been issued. -
2) in your case you were allotted property in 2008
3) even if sale deed has been executed in 2014 on sale of property in 2015 you would be assessed to long term capital gains tax
4) High Court in the case of CIT v. Ved Parkash and Sons (HUF) (1994) 207 ITR 148 and Circular No. 471, dated October 15, 1986 (1986) 162 ITR (St.) 41, held that the allottee gets title to the property with the issuance of allotment letter and payment of instalments is only a follow up action and taking of the delivery of possession is only a formality and no right as such accrues
1) as mentioned by me in my reply for calculation of tax liability on sale of property date of allotment of property would be considered . in your case you were allotted house in 2008 , entire sale consideration was paid in 2008 merely because registration is done in 2014 would not make you liable for short term capital gains tax if you sell the property in 2015
2)it is always better to register sale deed to avoid legal hassles later with the builder . registration confers clear and marketable title to the property
3) number of lawyers on this site from kolkata who would be able to clarify your doubts
1. The relevant date would be the date of registration and not the date of possession or allotment.
2. If you sell the property now it will be taxed as short-term capital gain as you have held the property for less than 3 years. The period for which the property has been held is the touchstone to attract short-term capital gain or long term capital gain tax.
3. You can claim tax exemption on the long-term capital gain on the sale of a house. To avail of this exemption, you must use the entire profit to either buy another house within two years or construct one in three years. If you had already bought a second house within a year before selling the first one, you could still avail of the tax exemption. Such capital gain exemption is reversed and the amount taxed as capital gain if the new property is sold within three years of the date of purchase/construction. This profit will be considered a short-term gain and taxed at the normal slab rates, not the 20% beneficial rate.
1. Unless the property is registered the title does not pass.
2. A long-term capital loss can only be adjusted against long-term capital gain. However, short-term capital loss can be set-off against any taxable long-term capital gain or short-term capital gain.
3. In your case the sale before 3 years will be reckoned as STCGT.
I am confused now after going through the contradicting replies....!!
Asked 3 years ago
As my property is in Kolkata, and I know there is a growing propensity in Kolkata, of not registering any property quickly in order to facilitate transfer to anyone (even back to builder) and thus avoiding double dipping in registration (seller & buyer) and also to avoid any Capital Gains tax.
Since in Kolkata majority of date of purchase is not the same as date of registration, many investor in Kolkata (on investing point of view) think twice before registration. There was a strong belief in me that once the property is registered, property should be held for atleast 3 years in order to avoid STCGT (which I saw Mr Sethi did rule out in his replies in a very straightforward way).
Any advocate specifically from Kolkata, can please respond to this above (clarifying above).
Asked 3 years ago
what is contradiction in replies. i have quoted judgement in support of my stand
1. Here you have invested in the year 2008,
2. You want to sell the said property in the year 2015 for which you will make a capital gain in the year 2015 i.e. after around 6 years of your investment,
3. So, it will be a LTCG.
1. You are right to state that a property bought and registered should be kept for at least 3 years before reselling to avoid STCG Tax,
2. In your case you have made 100% of the investment in the year 2008,
3. So, as regards your gain on the capital invested by you in the year 2008, it will attract LTCGT.
1. There will be contradicting views of legal matters,
2. Different lawyers will interpret law differently.