BUILDER SELLING CONSTRUCTION PROPERTY

Your client's business model involves buying open plots, constructing houses, and selling them.

Here's a breakdown of the tax implications: Tax Implications -

*Capital Gains Tax*: If your client sells a property after holding it for more than 24 months, it's considered a long-term capital gain and is taxed at a flat rate of 20%.

However, if the property is sold within 24 months, it's considered a short-term capital gain and taxed according to the income tax slab rates. -

*Business Income*: If your client's primary mode of income is from buying, constructing, and selling properties, the profits generated from such activities are considered "Income from Business or Profession" and taxed accordingly

Exemptions - *Section 54 Exemption*: If your client invests the net proceeds from the sale of a property in purchasing or constructing another residential property within a specified timeframe (1 year before or 2 years after selling the old asset, or constructing a new house within 3 years), they may be eligible for exemption from capital gains tax.

Tax Benefits on Construction - *Interest on Home Loan*: Your client can claim a deduction of up to ₹2 lakhs for interest paid on a housing loan under Section 24B of the Income Tax Act.

However, this deduction is allowed only after the property is completed and possession is taken. -

*Principal Repayment*: Your client can also claim a deduction of up to ₹1.5 lakhs for principal repayment on a home loan under Section 80C.

GST Implications - *GST Rate*: The GST rate applicable to under-construction properties is 5%.

For affordable housing properties priced up to ₹45 lakhs, the GST rate is 1%.

 It's essential to consult a tax professional to determine the specific tax implications for your client's business, considering their individual circumstances and the complexity of tax laws.

Small builder buying plots and selling houses:

• Houses built for sale are stock-in-trade, so profit is business income (not capital gains), even though AIS shows them as property sales. Report them as turnover in ITR-3, with cost of land and construction.

• Sec 43CA: if the sale price is below the stamp duty value by more than 10%, the SDV is taken as the sale value.

• GST: houses sold after the completion certificate attract no GST. Sales booked before completion are taxable (5% or 1% without ITC). Register if such turnover crosses the threshold.

If the builder buys plots, constructs houses as part of the business and sells them, the plots and completed houses would generally be treated as stock-in-trade. The profit is ordinarily taxable as business income, not capital gains; construction and other costs are taken into account in computing that profit, subject to the applicable accounting and tax rules. The AIS entry showing a building sale is information reported by a third party—it does not, by itself, determine the tax treatment. Reconcile it with the sale deed, books and return, and report the transaction consistently.

Check whether the AIS item relates to a sale by this client and whether the reported consideration matches the deed and books. Also review the GST and TDS position separately, as those depend on the transaction details and applicable rules. The facts that could change the analysis include whether the client built the property for resale or used/held it as a capital asset, and whether the sale was of a completed house or an under-construction property.

Reconciling AIS with the books and return is an important part of the builder’s tax-compliance workflow. Manual checking across deeds, ledgers and tax records can be difficult; automation reduces repetitive work while professional judgment remains in control. At Jir AI we provide 2,000+ AI agents and 650+ integrations to streamline your practice’s day-to-day workload. For a practical look at streamlining this workflow, connect with us on WhatsApp: https://wa.me/message/3HVOZ7HIY4ESC1