Ltcg

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Venkatakrishnan (Querist)
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18 September 2012 A friend bought a new house - paid entire amount in July 2011, got possession in October 2011. Sold his another old house in Sep 2012. Is he chargeable for LTCG? Is the one year period calculated wrt sale deed date, final payment date or possession ready date

Thanks

CA Ghanshyam Joshi

CA Ghanshyam Joshi (Expert)
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18 September 2012 7.4 TRANSFER: WHAT IT MEANS [SECTION 2(47)]
The Act contains an inclusive definition of the term ‘transfer’. Accordingly, transfer in relation to a capital asset includes the following types of transactions :—
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) the owner of a capital asset may convert the same into the stock-in-trade of a business carried on by him. Such conversion is treated as transfer; or
(v) the maturity or redemption of a Zero Coupon Bond; or

the below is most important ==>>>
(vi) Part-performance of the contract : Sometimes, possession of an immovable property is given in consideration of part-performance of a contract. For example, A enters into an agreement for the sale of his house. The purchaser gives the entire sale consideration to A. A hands over complete rights of possession to the purchaser since he has realised the entire sale consideration. Under Income-tax Act, the above transaction is considered as transfer;

Year of chargeability - Capital gains are chargeable as the income of the previous year in which the sale or transfer takes place. In other words, for determining the year of chargeability, the relevant date of transfer is not the date of the agreement to sell, but the actual date of sale i.e., the date on which the effect of transfer of title to the property as contemplated by the parties has taken place [Alapati Venkatramiah v. CIT [1965] 57 ITR 185 (SC)]. Thus, in the case of any immovable property of the value exceeding Rs. 100, the title to the property cannot pass from the transferor to the transferee until and unless a deed of conveyance is executed and registered. Mere delivery of possession of the immovable property could not itself be treated as equivalent to conveyance of the immovable property. In the case of any movable property, the title to which would pass immediately on delivery of the property in accordance with the agreement to sell, the transfer will be complete on such delivery. However, as already noted, Income-tax Act has recognised certain transactions as transfer in spite of the fact that conveyance deed might not have been executed and registered. Power of Attorney sales as explained above or co-operative society transactions for acquisition of house are examples in this regard.

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Venkatakrishnan

Venkatakrishnan (Querist)
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18 September 2012 Thanks very much for the immediate response. In this case, the asset in the Construction agreement is non existent (WIP) in it's form till the construction is over. So is it right to treat the purchase of the new flat as the date on which it was completed as per the construction agreement and not to take note when the consideration was paid or when the sale deed for the undivided share was registered.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 For computing Long-Term Capital Gains (LTCG) and determining whether your friend will be liable for LTCG tax, we need to consider the following aspects:

### **1. Long-Term Capital Gain (LTCG) Computation:**

**a. **Sale of Old House:**
- Your friend sold the old house in September 2012. To determine if the gain is long-term, the holding period of the property is crucial.

**b. **New House Purchase:**
- The new house was bought in July 2011 and possession was received in October 2011.

### **2. Holding Period for LTCG:**

**a. **Calculation of Holding Period:**
- **Long-Term Asset Holding Period:** For real estate, the asset must be held for more than 24 months to be considered a long-term asset. The holding period is calculated from the date of acquisition to the date of sale.

**b. **Relevant Dates for Holding Period:**
- **Purchase Date:** The relevant date for LTCG calculation is the date on which the new house was legally acquired or considered as acquired, which is usually the date of payment or registration.
- **Possession Date:** While possession date is important for practical purposes, the key date for the LTCG calculation is typically the date of payment or registration.

### **3. Treatment of the New House in LTCG Calculation:**

**a. **Date of Acquisition:**
- For LTCG purposes, the date of acquisition of the new property is typically taken as the date on which the property is legally transferred or registered. In this case, if the sale deed was registered in October 2011, this would be considered the date of acquisition.

**b. **Construction Agreement:**
- If the new property was under construction and you have a construction agreement, the date when the construction is completed (or possession is given) is generally used for LTCG calculation.

### **4. Tax Implications:**

**a. **Sale of Old House:**
- Since the old house was sold in September 2012 and the new house was acquired by July 2011 (and possession received in October 2011), the holding period for the new house will be considered from the acquisition date in October 2011.

**b. **Eligibility for Exemption:**
- If the new house was acquired within one year before the sale of the old house, it qualifies as a replacement property under Section 54 of the Income Tax Act, which can provide exemption on LTCG from the old house.

### **Summary:**

- **Holding Period Calculation:** The holding period of the property is calculated from the date of acquisition to the date of sale. For LTCG, use the date of registration or final payment as the date of acquisition.
- **Possession Date:** While possession is important for practical purposes, the date of acquisition for LTCG is typically considered as the date of registration or payment.
- **Tax Implications:** As your friend acquired the new property in July 2011 (with possession in October 2011) and sold the old property in September 2012, the new property should be considered as acquired before the sale of the old property, and the LTCG might be exempt if conditions under Section 54 are met.

Always consult with a tax advisor or financial expert to confirm the exact treatment and ensure compliance with the latest tax laws and provisions.