I am facing certain problems as to taxation of Capital Gains the facts which are as under;
1) Mr. A enters into contract with builder X for purchase of property which is under construction by paying Rs.1000k. 2) He needs to pay Installment on yearly basis say 250k for 5 years and had paid in due time by taking loan from Bank (pre-construction interest 600k). 3) The property under construction gets completed after 7th year and possession letters is given after end of 11th year from the date of construction. 4) 300k is paid for stamp duty and registration of sale deed on 12th year. 5) No suit for delay in time lag was filed by purchaser.
Now purchaser needs to sale the above property in 13th year for 5000k and wants to know following; 1) Whether the above property is Short term Capital Asset or Long term Capital Asset. 2) What shall be Date of Acquisition for determining the type of capital asset (i.e. Long term or Short term)? 3) What shall be date of acquisition and cost of acquisition for determining the Capital gains? 4) If the above property is house property, can purchaser claim pre-construction interest as cost of acquisition? if the property is not a house property then can such claim can be made? 5) What happen to Capital Gains if the property is house property and Stamp duty and registration charges paid are claimed under section 80C?
Request you to provide your views for any of the above Issues.
18 July 2024
Based on the information provided, here are the answers to the queries related to taxation of capital gains from the sale of property:
1. **Nature of Capital Asset:** - The property purchased from the builder X, which is under construction and later completed, would be considered as a "capital asset" for the purpose of taxation under the Income Tax Act, 1961.
2. **Date of Acquisition:** - The date of acquisition for determining whether the property is a short-term capital asset or long-term capital asset would be the date on which Mr. A entered into the contract with builder X. This is typically considered as the commencement date of ownership for under-construction properties.
3. **Date of Transfer and Cost of Acquisition:** - **Date of Transfer:** The date of transfer would be the date on which Mr. A sells the property, which is in the 13th year. - **Cost of Acquisition:** For under-construction properties, the cost of acquisition includes the amount paid to the builder (Rs. 1,000k initially and subsequent payments), pre-construction interest paid (Rs. 600k), stamp duty and registration charges paid (Rs. 300k), and any other directly attributable expenses. These expenses incurred until the completion of construction and issuance of possession would be part of the cost of acquisition.
4. **Claiming Pre-Construction Interest as Cost of Acquisition:** - Yes, Mr. A can claim the pre-construction interest of Rs. 600k as part of the cost of acquisition if the property is a house property. The pre-construction interest forms part of the cost of acquisition under Section 48 of the Income Tax Act, which allows deduction of expenses incurred wholly and exclusively for the purpose of acquisition of the property.
5. **Stamp Duty and Registration Charges under Section 80C:** - Stamp duty and registration charges paid cannot be claimed under Section 80C of the Income Tax Act. Section 80C allows deductions for specified investments and expenditures such as life insurance premiums, tuition fees, provident fund contributions, etc. Stamp duty and registration charges are part of the cost of acquisition for the purpose of computing capital gains under Section 48, not eligible for deduction under Section 80C.
### Summary: - The property will be considered as a long-term capital asset since the holding period is more than 24 months (from the date of the contract with the builder to the date of sale). - Date of acquisition for determining capital gains would be the date of entering into the contract with builder X. - Cost of acquisition would include initial payment to the builder, subsequent installments, pre-construction interest, stamp duty, registration charges, and other directly attributable expenses. - Pre-construction interest can be claimed as part of the cost of acquisition. - Stamp duty and registration charges are not eligible for deduction under Section 80C but are part of the cost of acquisition for capital gains calculation.
For accurate and personalized advice, it is recommended to consult a tax professional or chartered accountant familiar with Indian tax laws, as they can provide guidance tailored to specific circumstances and ensure compliance with tax regulations.
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