Flat sale

This query is : Resolved

Nikhil Gupta (Querist)
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16 February 2016 Hi, Please advice on taxability, registration of society if required, or any other specific regulation applies to me on below transaction. I am an invidual have a land and I am developing that land into 3story flats building consisting of 6 flats. I have a plan to sale those flats. do I need to have register a hosing society? how can I get registry of each flat separately and how? how income tax will be calculated in this transaction as I am an individual doing business other than construction and falls under tax audit? also advice if it will be a business income then it will be short term capital gain tax or long term or income from house property? I had land since last 3 years and project will take one more month for completion. Thanks.

Nikhil Gupta

Nikhil Gupta (Querist)
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16 February 2016 Also please advice on MP VAT and service tax applicability?

Nikhil Gupta

Nikhil Gupta (Querist)
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06 April 2016 No reply received, please advice

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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25 July 2024 Certainly! Your situation involves several aspects related to taxation, registration, and compliance. Let's break down each aspect:

### 1. Registration of Society:
You mentioned developing a building with 6 flats. Typically, forming a housing society (or cooperative society) becomes relevant when multiple owners come together to manage common areas and facilities. As the developer, you may consider forming a cooperative housing society once the flats are sold, but it's not mandatory for you to register a society personally unless you plan to retain ownership of any units.

### 2. Registration of Flats:
Each flat you intend to sell needs to be registered individually. Registration of property involves executing a sale deed with each buyer, which is done at the local Sub-Registrar's office where the property is located.

### 3. Income Tax Implications:
- **Nature of Income**: Since you are developing and selling flats, the income derived will generally be considered as business income under the Income Tax Act, unless you can demonstrate that the activity is on a smaller scale or more akin to investment (which seems less likely given your ongoing and planned development).

- **Tax Calculation**:
- If the flats are sold within 3 years of purchase of the land, any profit (sale price minus cost of acquisition and development) will be considered as short-term capital gains and taxed at your applicable slab rates.
- If sold after 3 years, it will be considered as long-term capital gains and taxed at 20% with indexation benefits.

- **Tax Audit**: If your total income from this business exceeds the threshold limits set by the Income Tax Act (currently ₹1 crore), you will need to get your accounts audited by a Chartered Accountant.

### 4. MP VAT and Service Tax (now GST):
- **MP VAT**: For sale of under-construction properties, VAT was applicable under the Madhya Pradesh VAT Act. You would need to check the specific rates and requirements with a local tax advisor as these regulations can change over time.

- **Service Tax/GST**: Under the previous regime (Service Tax) and current GST regime, sale of under-construction flats is considered a taxable service. Depending on the completion status and sale agreement dates, different tax rates might apply. GST rates vary based on factors such as construction completion status and affordable housing criteria.

### Steps to Consider:
- **Consult a Tax Advisor**: Given the complexity and potential changes in tax laws, consulting with a local tax advisor or a Chartered Accountant who is familiar with real estate transactions in Madhya Pradesh (MP) would be prudent.

- **Compliance**: Ensure compliance with local laws regarding property registration, VAT/GST, and any other regulations applicable to property development and sale in MP.

In summary, while your primary income from developing and selling flats will likely be treated as business income subject to tax audit, the specifics of tax calculation, VAT/GST implications, and registration requirements will depend on the exact details and current laws in MP. Seeking professional advice will help navigate these complexities effectively.