Short term capital gain on property

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2014 Hope you are doing well. I have a query for which I have mixed answers. I want to understand the correct thing from an expert like you. Here goes:

If I sell a property (no possession yet, no registry) can I adjust interest paid on home loan against the premium gained? For example, if I get 10 lac premium on selling my property (cost:80 lac, sold at: 90lac, for example) and in this period, if I have paid 5 lac as interest on home loan, will the short term capital gain be 5 lac or 10 lac? Note the property is not 3 years old.

Another question is, if the possession is not provided by the builder, how does one calculate the number of years of acquisition of the property? For example, if I bought my property in June 2011, will I get exemption from short term capital gain after June 2014 even though the builder hasn't offered possession at the time?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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07 January 2014 1. till you dont get possession, what you have is the "right" in the property. it comes into existence when the initial agreement between you and the builder is signed. So the holding period for the "Right" will start from the date of the initial agreement.

2. The interest is to be added to the cost of the "right" to arrive at actual gain/loss. Given that interest against which deduction has been claimed under section 24 too is allowed as a deduction while computing capital gains, there is no reason to disallow the same while computing the cost of "right" in a property.

other views are solicited.

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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07 January 2014 with regards to holding period with respect to when it becomes long term, the right shall become long term in June 2014, thereafter you shall be eligible to claim exemptions applicable to long term capital gains.

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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07 January 2014 Yes Nikhil is right and if the holding period from the initial booking is over 36 months then yest it is LTCG and if less then it is STCG and accordingly the tax is to be calculated.

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2014 Nikhil and Mr. Agarwal,

Thanks for the prompt response. This is excellent forum for less informed users like us.

Just to understand it correctly, you made two points.

1) The "right" to property starts from the day of initial agreement with the builder and the property can be deemed taxable under LTCG after a 3 year period

2) The home loan interest can be deducted from the proceeds of the sale to calculate the actual gain/loss.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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07 January 2014 just to clarify the second point, interest needs to be added and appropriately indexed to arrive at indexed cost of the right. thereafter this indexed cost needs to be deducted from the proceeds of the sale to arrive at the gains.

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2014 Nikhil and Mr. Agarwal,

Thanks for the prompt response. This is an excellent forum for less informed users like us.

Just to understand it correctly, you made two points.

1) The "right" to the property starts from the day of initial agreement with the builder and the property can be deemed taxable under LTCG after a 3 year period

2) The home loan interest can be deducted from the proceeds of the sale to calculate the actual gain/loss.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2014 Nikhil,

Indexation also applies for STCG? or only for LTCG

This is getting confusing for me slightly. Currently the property is 2.5 years old (using the "right" to property principle you just mentioned). If I sell the property now, and for example get 10 lac premium from the proceeds and so far have paid 5 lac as interest, how do I calculate the STCG?

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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07 January 2014 no...not for short term...indexation is applicable only for ltcg.

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2014 Nikhil,

Please answer my previous query on calculation of STCG.

Profits from sale: 10lac
Interest paid: 5 lac

STCG is on 5 lac or 10 lac?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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07 January 2014 dear friend, it is like this cost of purchase 80 lacs + interest cost (5 lacs) = 85 lakhs (cost)

proceeds Rs 90 lakhs

profit: 5 lakhs

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