SALE OF HOUSE,LTCG,COST OF IMPROVEMENT,PERIOD OF HOLDING ISSUE

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I have a few lay-man queries...

  1. If I have bought a flat in Jan2005 by paying full disbursement - can that be taken as a date of acquisition?
  2. the registration was done only in Feb 2008... !!! Which is the date valid for beginning to count when it gets a long term asset status.
  3. If the price paid to builder is 25 lakhs - sale price is 55 lakhs, the net gain seems 30lakhs... Can one include the registration/stamp duty of 3 lakhs onto the 25 lakhs cost...?
  4. Can I include the approx 5-6 lakhs of interest + fee paid to bank on the home loan as part of cost?
  5. Can I include the cost of woodwork/interiors done on the house as part of cost as well? What is the proof required..?
  6. If the above is not deemed as LTCG yet, what is the rate chargeable as STCG...? Is there a way to save on that STCG...?
  7. If one invests the gain in Bonds under sec54, can those bonds be broken midway before three years without penalty or need to pay LTCG (assuming its used to buy another home)....
  8. since with the sale, I will have to foreclose the loan with my bank, there is an 70-80k foreclosure penalty to be paid as well... Would that be deemed as a cost as well....?
  • Sidharth

  • Very interesting points ,I am trying to answer these queries and if any body has different version than please record in comment section

    Capital gain on capital asset are applicable on transfer of asset sos transfer date will decide what is acquisition date and what is date of sale.so first talk about what is the meaning of transfer.

    transfer, in relation to a capital asset, includes,
    • the sale, exchange or relinquishment of the asset ; or
    • the extinguishment of any rights therein ; or
    • the compulsory acquisition thereof under any law ; or
    • in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment or
    • the maturity or redemption of a zero coupon bond; or
    • any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A 25 of the Transfer of Property Act, 1882 (4 of 1882) ; or
    • any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

    As per Transfer of property act 1982 scetion 54 ,sale of immovable property shall be registered if property value is more than 100 other wise sale will not be effective.section 54 reproduced as under

    • 54. "Sale" defined
    • "Sale" is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.
    • Sale how made: Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.
    • In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.
    • Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.
    • Contract for sale: A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties.It does not, of itself, create any interest in or charge on such property.

    so from above the transfer date of immovable property depend upon two things
    1. date of registration
    2. date of possession of immovable property
    in general practice date of registration and date of possession is same but in case of flat it may be different so if amount is paid and possession is given even registration is pending then transfer date will be date of possession by the purchaser under section 53A of transfer of Property Act as explained in definition of "transfer" under Income Tax Act

    Ans (1) & (2)
    on the basis of above details in my opinion the answer of your point one and two is that if you have taken the possession of the flat/property Jan 2005 itself ,then this transfer will be covered under section 53A of Transfer of property act and possession date will be the date of acquisition /Date of transfer even though registration date is feb 2008 .

    Now lets discuss about what is the meaning of cost of capital asset sold .This has been explained in section 48 of the Income Tax Act.

    48. The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :
    (i) expenditure incurred wholly and exclusively in connection with such transfer;


    (ii) the cost of acquisition of the asset and the cost of any improvement thereto:

    Further second proviso of the section 48 says that


    Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words cost of acquisition and cost of any improvement, the words indexed cost of acquisition and indexed cost of any improvement had respectively been substituted.


    Cost of Acquisition Means value for which it was acquired.Capital Expenses paid for completing or acquiring the Title of the property are includible in the cost of acquisition.


    Ans :3
    So on basis of above point ,expenses paid for the stamp duty and registration charges are part of the acquisition cost.

    Ans-4 :
    Interest paid for House loan can be treated as cost of acquisition if this has not been claimed as deduction under any head under income tax act as double deduction is not allowed .so if you have not claimed Interest on house loan as deduction under income from house property then you may add this interest cost for calculation of acquisition cost .This result is based on Court judgments and not has been clearly defined in the Act .

    Ans-5

    Cost of Interiors and wood work will be covered under cost of Improvements and allowed as deduction .To claim this expenditure you have reasonable bills of Interior decorator, contractor/ material bill with you.

    Ans-6
    As given in ans 1 & 2 ,your transaction may also be covered in STCG also .if this is the case then capital gain will be included in your other income and tax will be applicable as per slab rate of income tax on total income including STCG.There is no way to save STCG.

    Ans -7
    If you sell the bonds purchased to save tax u/s 54EC before the expiry of three years from the date of purchase ,then Long term Capital gain saved due to purchase of Bonds will be taxable in your hand in the years of selling of Bonds.Even though you have sold it to purchase a new house.

    Here my suggestion is that if you want to purchase house at latter stage as the prices are falling then you can park/invest your money in Capital gain scheme-1988 ,and can withdraw money within the period of three for construction of house and two years for purchase of house to save capital gain tax from sale of residential house.

    Ans-8
    In my opinion ,Foreclosure of Loan has no relation with cost of improvement/acquisition of house so it is not to be included in the cost of acquisition and not allowed as deduction.

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