19 February 2014
IF I HAVE PAID ADVANCE OF RS. 12 LAKHS FOR PURCHASE OF A FLAT AND LATER RECEIVED RS. 17 LAKHS FROM ANOTHER INTERESTED PROSPECTIVE BUYER FOR GIVING UP MY BOOKING RIGHTS ON THAT FLAT. SO THE DIFFERENCE OF RS. 5LAKHS SHALL BE CHARGEABLE TO IFOS OR CAPITAL GAIN.?
19 February 2014
This amount should be termed as income from other sources as the possession/ownership still not acquired by you so no Capital Gain arises.
20 February 2014
Thank you, sir... but i would like to draw your attention to the fact that although there is no transfer of ownership, there is relinquishment of rights by the assessee Which is also a transfer. Please clarify the same.
18 July 2024
In the scenario you've described, where you paid an advance of Rs. 12 lakhs for the purchase of a flat and later received Rs. 17 lakhs from another interested buyer for giving up your booking rights, the tax treatment depends on the nature of the transaction and the rights relinquished. Here’s the clarification:
### Tax Treatment:
1. **Relinquishment of Booking Rights:** - When you received Rs. 17 lakhs from the prospective buyer, you effectively relinquished your booking rights to the flat. This relinquishment constitutes a transfer under the Income Tax Act, even though there is no transfer of ownership. - According to Section 2(47) of the Income Tax Act, the term "transfer" includes the extinguishment of any rights in a capital asset. - Therefore, the difference of Rs. 5 lakhs (Rs. 17 lakhs received - Rs. 12 lakhs paid) will be considered as a capital gain.
2. **Nature of Income:** - The Rs. 5 lakhs will be treated as **Short-Term Capital Gain (STCG)** or **Long-Term Capital Gain (LTCG)** depending on the period for which you held the booking rights. - If you held the booking rights for more than 24 months (2 years), it will be considered as LTCG. If held for 24 months or less, it will be considered as STCG.
3. **Calculation of Capital Gain:** - **STCG:** Taxable STCG = Rs. 5 lakhs - (Cost of acquisition of booking rights + Expenses incurred in relinquishment) - **LTCG:** Taxable LTCG = Rs. 5 lakhs - (Indexed Cost of acquisition of booking rights + Expenses incurred in relinquishment)
### Expenses Deductible: - You can deduct the cost associated with acquiring and relinquishing the booking rights, such as legal fees, brokerage fees, or any other expenses directly related to the transaction.
### Documentation and Compliance: - Maintain proper documentation of the transaction, including agreements, receipts, and correspondence with the prospective buyer. - Ensure accurate calculation of capital gains and timely payment of taxes.
### Conclusion: Based on the information provided, the difference of Rs. 5 lakhs received upon relinquishing your booking rights will be treated as capital gains (either STCG or LTCG). It’s advisable to consult with a tax advisor to determine the exact nature of the gain (STCG or LTCG), compute the taxable amount accurately, and ensure compliance with tax laws.
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