Is "Agreement to sale" is legal proof for capital gain?

Dear Phani,

U asked many questions in this small post.............:)

Lets pick then one by one -

Q1 - Can agreement to buy/sell be treated as buying of house?

A  - No, agreement to buy/sell is not treated as actual buying of house.

Q2 - Whether property should be registered in the name of buyer within the period to claim the exemption?

A - U/s 54, Registration of property is not a prequisite to claim exemption. Having said that, to have it is always a good option since you can support ur claim with a registered document.  

Q3 - Decision to Register the  property at a amount less than the actual price to avoid stamp duty?

A -  First stamp duty is charged at a circles rates fixed by the govts, etc So stamp duty can only be reduced if the amount which u r declaring is higher than circle rates.

Second, it will create problems for you since u will not get full exemption of what u will actually pay. Further, if in future u will go for disposing that property then lower cost will be deducted to compute capital gains.

Not a good decision.

Q4 - Finally a million dollor question then what is relevant for claiming exemption?

A- The section has used the term "ownership" - more often than not it is related with physical possession of the property, which one should get within 2 years from the date of sale in cace he is buying a house and if he is constructing it then 3 years.

Till the time u r not getting physical possession of the property u can claim the exemption by depositing the money in a Capital Gain A/c (just like a saving account) with a Bank.

agree with Mr. Amir.........

Thanks Amir, that was useful.

Here is the details for my case:

1. Market value that I'm paying is: X

2.Govt value in that circle : X/2

3.The money that I need to re invest to make use of current capital gain is: X

So you are saying that by having 'agreement to sale' @ X and then registering @ X/2 will not help me and in case my case come to IT scruitiny, they will consider that I've reinvested X/2 only and for the remaining X/2 I'll have to pay penalty, is that correct? or I can show the 'agreemenmt to sell' which was for 'X' as proof of what I've reinvested and get away from IT sleuths?

I don't want to be illegal, trying to find if I can save stamp duty on X/2.

Thanks for quick response, really appreciate it,

-Phani.

HI Phani,

Ur understanding is correct....

Agreement to buy/sell will not help u in case u get caught by IT folks....

I appreciate that u dont believe in evasion or going illegal....

One way to reduce stamp duty is to get the new house registered in the name of ur spouse or mother....cos generally the rate of stamp duty is lower in case of women...u will still be eligible to claim the exemption....

Amir,

Thanks a bunch, your answer helped to clear of all doubts that I had in my mind. Appreciate your selfless help.

Thanks again,

-Phani.

Hello,

I am in a similar situation as Phani. I am selling my old flat and have agreed to buy the new flat. I will be getting the proceeds from sale of my old flat this month.

The new flat I am buying is in construction and I will get the possession next month (same time or a week before the actual transfer of old flat happens). I read that the new property can be acquired 1 year before or 2 years after the actual transfer of old flat. The construction of new house is going on for 2 years and the registration is done 18 months back. The builder said he will give the possession letter next month. My question is the following:

- Can I use the possession letter to get exemption from CG? The price of new flat is a lot more than the CGs I am making with the sale of old flat.

- The HFC has been paying the builder amounts after completion of every floor slab. I have receipts in my name from teh builder for the amounts that are equal to CGs and within a period of 1 year from the date of transfer of old flat. I can use this as a proof as well?

Thanks a lot and appreciate the response here

- Kiran