Whether investment in under-construction property, if held for more than 3 years, will be eligible for long term capital gain benefits? What are the benefits of buying space in under-construction projects?
Income tax provides various benefits to long term capital assets such as:
As per Income Tax Law, capital asset, being property (other than shares) if held for more than 3 years, is treated as Long Term capital asset.
Investment in under-construction property shall be eligible for long term capital gain benefits if the investment is treated as capital asset. As per legal pronouncements and stand accepted by the Tax authorities, letter of allotment issued on booking under construction property is treated as capital asset. Letter of allotment de-facto gives title of property with all the rights and responsibilities of ownership. Thus it’s a matter of great importance that while purchasing property, letter of allotment or any other document is executed which depicts entitlement to property.
Mr. Kumar purchased an under construction residential house in April, 2011 for Rs. 84,00,000. He paid Rs. 20,00,000 on booking in April 2011, Rs. 20,00,000 in April 2012, Rs. 20,00,000 in April 2013 and balance Rs. 24,00,000 in April 2014 on getting possession. He sold the house in January , 2016 for Rs. 1,20,00,000. In this case residential house is a capital asset of Mr. Kumar and, hence, the gain of Rs. 36,00,000 arising on account of sale of residential house will be charged to tax under the head “Capital Gains”. As the property is held for more than 36 months, the gain shall be treated as ” Long Term Capital Gain” and taxed at the special rate of 20%. Also he will get benefit of indexation of cost which will substantially reduce the capital gain.
Read more about property tax laws in India
To summarize, property under-construction shall be entitled to benefits of long term capital gain if held for more than 3 years.
Thank you for visiting our website. We are currently updating our website towards compliance of the newly introduced housing law for the State of Maharashtra i.e. the Real Estate (Regulation and Development) Act, 2016 and the rules and regulations notified thereunder.
In the interim, no information, images or material which is currently available / displayed on the website relating to builder projects shall be deemed to constitute any advertisement, invitation, solicitation, offer or sale of any such builders product offerings. Please contact us for any enquiry.CONTACT US