CG after sale of flat

This query is : Resolved

Quick Summary

Selling a new property within 3 years of claiming Section 54 exemption revokes the earlier LTCG benefit by reducing the cost of acquisition, resulting in higher STCG. A builder receipt helps but an allotment letter or sale agreement is preferable. Refund scenarios depend on the facts.

Suraj

Suraj (Querist)
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21 June 2026 Mr A purchased a flat in January 2008 and sold it on 15th March 2024, generating a long-term capital gain of Rs. 19.60 lakhs.

He invested Rs. 40 lakhs in an under-construction property on 20th March 2024. The possession of this flat is expected in August 2026.

He has plans to sell this flat immediately upon receiving the possession for Rs. 45 lakhs. Will the earlier LTCG of Rs. 19.60 lakh become taxable?

Neither the sale agreement has been entered into nor has any allotment letter been received till date.

I wish to know his tax liability.
Kindly revert.
Regards,
Suraj

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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22 June 2026 Will the earlier LTCG become taxable? Yes. Selling the new flat immediately upon possession in August 2026 violates the mandatory 3-year lock-in period under Section 54.

What is the tax liability? The previously exempted ₹19.60 lakhs will be clawed back by reducing the cost of the new flat. Upon selling it for ₹45 lakhs, Mr. A will face a Short-Term Capital Gain (STCG) of ₹24.60 lakhs, taxable at his regular slab rates.

Severe Compliance Risk: Because there is no allotment letter or sale agreement executed yet for the ₹40 lakhs invested, the Income Tax Department can disallow the Section 54 exemption completely during an assessment. Mr. A needs to get these documents executed immediately to safeguard the transaction's legitimacy.

Suraj

Suraj (Querist)
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22 June 2026 Sir, the builder has issued a receipt of Rs. 40 lakhs mentioning the flat no and car parking. Will that be good?

Suraj

Suraj (Querist)
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22 June 2026 Sir, as more delay is expected in getting the flat if Mr A does not take possession & takes money back from the builder, then what will be the nature of the previously claimed exempt capital gain, short-term or long-term?