Under construction property taxation

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This discussion clarifies the tax implications of selling an under-construction property. The key question revolves around whether the holding period for Long-Term Capital Gains (LTCG) is two or three years, with the consensus leaning towards three years when possession hasn't been taken. It also addresses eligibility for tax rebates under Section 54 or 54F when reinvesting sale proceeds, confirming that exemption is possible even with other properties like a rented commercial unit or vacant plot, provided the conditions for Section 54F are met.

Rajiv

Rajiv (Querist)

20 October 2022 I bought an under-construction residential flat from builder in September 2020 and did an agreement in same month. If I sell the property in October 2022, my questions are

1. Is LTCG or STCG applicable on this property? One opinion here is that since the property is held for 2 years, it is LTCG. But the other opinion is that as I am not selling property but the right on the property, for which I need to hold minimum 3 years. Should I assume holding period to be 2 years or 3 years for it to be counted as LTCG?

2. Which section is applicable for tax rebate 54 or 54F, if I reinvest the sale proceed in other residential property?

3. I am holding one residential property which is rented, one commercial property again rented and one plot which is vacant in addition to these properties(the property I sold in Oct 2022 and another I may buy in November 2022). Am I still eligible for benefit under section 54 or 54F?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

20 October 2022 1. As you have not received possession of the property, but only rights in an property, for LTCG 3 years would be holding period.
2. IF LTCG for rights in property, sec. 54F would be applicable.
3. As here it is STCG, none of the exemption clause would be applicable.

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Rajiv

Rajiv (Querist)

20 October 2022 Thanks Dhirajlal

Regarding 3, What would be the answer in case holding period is more than 3 years.

As I understand section 54F says you can have one residential property other than the property in question. In this case I have only one residential property. I assume plot and rented commercial property is not counted as residential property. So I should be eligible for section 54F. Any opinion on this?

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

20 October 2022 You are correct, in that case you will be eligible for sec. 54F exemption.

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