Sale of possession of land

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 November 2013 Will capital gain tax be applicable when only possession rights (no legal title to the land) on urban agricultural land are sold in F.Y. 2013-14 by Mr X & Mr Y - two brothers to a builder who deducted TDS as per provisions or section 194 IA of the Income Tax Act from the payments made ? Initially, possession rights were purchased by the Mr X & Mr Y 10 years back from the legal owner. However, upon sale of these possession rights, sale Agreement for sale of possession of the land is made in the name of many parties, that is including family members of X & Y (Total 15 parties) that means payment made to 15 parties. But builder deducted TDS from payment made to Mr X and issued TDS certificate to him, which was as per mutual understanding between Mr X & Mr Y. Will this sale be liable for capital gain tax liability? If yes, whether all the 15 parties liable to pay capital gain tax? If all the parties are liable to file return whether TDS can only be claimed by Mr X or all can claim it in their return of income? How cost of acquisition will be taken to compute capital gain? Whether indexation benefit will be available? Whether possession rights will be considered as intangible asset?

Querist : Anonymous

Querist : Anonymous (Querist)

13 November 2013 Can someone please resolve this query ?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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22 July 2025 This is a complex scenario involving sale of possession rights without legal title. Let me break down the key points regarding capital gains tax, TDS, and treatment of possession rights under Income Tax law (FY 2013-14):

1. Is Capital Gains Tax Applicable on Sale of Possession Rights?
Yes, capital gains tax is applicable on sale of any capital asset as defined under Section 2(14) of the Income Tax Act.

Possession rights (even without legal title) can be treated as “capital asset” if they have value and are transferable.

Urban agricultural land possession rights sold to builder will likely be considered a capital asset for tax purposes.

Hence, the sale of possession rights would attract capital gains tax.

2. Who is Liable to Pay Capital Gains Tax?
The parties who sell the possession rights and receive consideration are liable to pay capital gains tax.

Since the sale agreement includes 15 parties (family members), all those 15 parties who received consideration should ideally declare capital gains and pay tax.

However, TDS was deducted only from Mr X’s payments, as per mutual understanding.

3. TDS Deduction and Claiming Credit
Under Section 194-IA, buyer deducts TDS on payment made to the seller.

Since builder deducted TDS only on payment to Mr X, only Mr X will get TDS credit via Form 26AS.

The other 14 parties will not get TDS credit for their share unless separate TDS is deducted on payments made to them.

Each seller should file income tax returns separately, declaring their share of capital gains.

Only Mr X can claim the TDS credit deducted on his payment. Other parties need to pay tax as per their capital gains and can claim TDS credit only if TDS is deducted on their payments.

4. Cost of Acquisition and Indexation
Cost of acquisition for possession rights will be the price paid by Mr X and Mr Y when they originally acquired possession rights (10 years back).

This cost can be allocated among the 15 parties based on their respective shares.

Indexation benefit is available on cost of acquisition for long-term capital gains (assets held for more than 36 months).

Since possession rights were held for 10 years, indexation benefit applies.

5. Is Possession Right an Intangible Asset?
Yes, possession rights without legal title may be classified as an intangible asset.

However, for capital gains tax, it doesn’t matter if it’s tangible or intangible — what matters is it’s a capital asset and is sold.

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