Gain or loss on unbuilt property
This query is : Resolved
24 February 2016
Mr A has booked a 6th floor flat in Oct 2012 under CLP plan. He paid 95% cost with in next 1 years when floor were casted till 8th floor.
He had taken a Home Loan for buying this flat. Now since the possession has been delayed , he wants to sell the property by tranferring the original allottment.
now he has following queries:-
a. will this transfer of allotment attract Capital Gain tax.
b. will he get the benefit of indexation if this is considered as transfer of capital asset.
c. in case above may not be considered as capital asset , then would he be able to claim interest paid over past 2-3 years from any gain on tansfer of such allotment.
Please reply urgently.
thanks..
27 February 2016
Dear Experts
Please provide your views on above queries at earliest.
..thanks
25 July 2024
Here are the answers to Mr. A's queries regarding the transfer of his allotment in the flat:
a. **Capital Gains Tax Implication:**
- Yes, the transfer of the allotment of the flat will attract Capital Gains Tax. According to the Income Tax Act, 1961, any transfer of a capital asset attracts capital gains tax. The term 'transfer' includes the sale, exchange, relinquishment, or extinguishment of any rights in the capital asset.
- In Mr. A's case, even though he has not received possession of the flat, the transfer of his rights in the allotment can be considered as a transfer of a capital asset, i.e., the right to acquire the flat.
b. **Indexation Benefit:**
- Yes, Mr. A will be eligible for the benefit of indexation. Indexation allows adjusting the purchase price of the asset based on the inflation index published by the Income Tax Department. This adjustment helps in reducing the taxable capital gains by accounting for inflation over the holding period.
- To calculate the indexed cost of acquisition:
```
Indexed Cost of Acquisition = Cost of Acquisition × (CII of the year of transfer / CII of the year of acquisition)
```
- CII stands for Cost Inflation Index.
c. **Claiming Interest Paid:**
- Mr. A can claim deduction of interest paid on the home loan as per the provisions of the Income Tax Act. The interest paid on a home loan is allowed as a deduction under Section 24(b) of the Income Tax Act, subject to certain conditions:
- The deduction is available for interest paid on the loan taken for the purpose of acquisition or construction of the property.
- The deduction is available even if the construction is not completed and possession is not received.
- However, the deduction for interest is subject to a maximum limit of Rs. 2 lakh per financial year for self-occupied property. Any interest over and above this limit can be carried forward for up to 8 assessment years.
### Summary:
- The transfer of the allotment of the flat will attract Capital Gains Tax.
- Mr. A will get the benefit of indexation to reduce the taxable capital gains.
- He can claim the interest paid on the home loan as a deduction under Section 24(b) of the Income Tax Act.
It's advisable for Mr. A to consult with a tax advisor or a chartered accountant who can provide personalized advice based on his specific circumstances and assist in calculating the exact tax liability and deductions.
a. **Capital Gains Tax Implication:**
- Yes, the transfer of the allotment of the flat will attract Capital Gains Tax. According to the Income Tax Act, 1961, any transfer of a capital asset attracts capital gains tax. The term 'transfer' includes the sale, exchange, relinquishment, or extinguishment of any rights in the capital asset.
- In Mr. A's case, even though he has not received possession of the flat, the transfer of his rights in the allotment can be considered as a transfer of a capital asset, i.e., the right to acquire the flat.
b. **Indexation Benefit:**
- Yes, Mr. A will be eligible for the benefit of indexation. Indexation allows adjusting the purchase price of the asset based on the inflation index published by the Income Tax Department. This adjustment helps in reducing the taxable capital gains by accounting for inflation over the holding period.
- To calculate the indexed cost of acquisition:
```
Indexed Cost of Acquisition = Cost of Acquisition × (CII of the year of transfer / CII of the year of acquisition)
```
- CII stands for Cost Inflation Index.
c. **Claiming Interest Paid:**
- Mr. A can claim deduction of interest paid on the home loan as per the provisions of the Income Tax Act. The interest paid on a home loan is allowed as a deduction under Section 24(b) of the Income Tax Act, subject to certain conditions:
- The deduction is available for interest paid on the loan taken for the purpose of acquisition or construction of the property.
- The deduction is available even if the construction is not completed and possession is not received.
- However, the deduction for interest is subject to a maximum limit of Rs. 2 lakh per financial year for self-occupied property. Any interest over and above this limit can be carried forward for up to 8 assessment years.
### Summary:
- The transfer of the allotment of the flat will attract Capital Gains Tax.
- Mr. A will get the benefit of indexation to reduce the taxable capital gains.
- He can claim the interest paid on the home loan as a deduction under Section 24(b) of the Income Tax Act.
It's advisable for Mr. A to consult with a tax advisor or a chartered accountant who can provide personalized advice based on his specific circumstances and assist in calculating the exact tax liability and deductions.
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