Kindly clarify the taxability—whether it will be treated as Long-Term Capital Gain (LTCG) or Short-Term Capital Gain (STCG)—in the case of sale of a flat which has been received from the government under compulsory acquisition immediately after possession.
The original property that was acquired by the government was a long-term capital asset.
Looking forward to your response.
Taxability of Sale of Flat Received Under Compulsory Acquisition When a property is received under compulsory acquisition, the tax implications depend on the nature of the original asset and the period of holding. Original Property:
Long-Term Capital Asset If the original property acquired by the government was a long-term capital asset, the tax treatment for the sale of the new flat would depend on the period of holding of the new flat. Period of Holding for New Flat -
*Holding Period*: The period of holding for the new flat would start from the date of possession or receipt of the flat.
- *Long-Term or Short-Term*: If the new flat is sold after holding it for more than 24 months, it would be considered a long-term capital asset. Otherwise, it would be considered a short-term capital asset. Taxability -
*LTCG or STCG*: If the new flat is held for more than 24 months, any gain on sale would be treated as Long-Term Capital Gain (LTCG).
If held for 24 months or less, the gain would be treated as Short-Term Capital Gain (STCG).
Calculation of Capital Gains - *Cost of Acquisition*: The cost of acquisition for the new flat would be the amount paid for it, if any, or the value considered for capital gains purposes at the time of receipt. -
*Indexed Cost*: For LTCG, the indexed cost of acquisition would be considered. Relevant Sections of Income Tax Act -
*Section 45*: Deals with capital gains on transfer of capital assets. -
*Section 48*: Specifies the mode of computation of capital gains.
Conclusion The taxability of the sale of the flat received under compulsory acquisition would depend on the period of holding of the new flat.
If held for more than 24 months, it would be treated as LTCG; otherwise, it would be treated as STCG.
It's essential to maintain records of the date of possession, sale, and calculation of capital gains
@ Dhruv
A short answer is that you sold the new flat before letting 24 months pass.
So any gain is to be treated as STCG on sale of residential property.
Whether it is LTCG or STCG depends on how long you held the property.
Holding period rule:
- MORE THAN 24 months from purchase to sale: LONG-TERM CAPITAL GAIN
- UP TO 24 months: SHORT-TERM CAPITAL GAIN
Tax rates:
- STCG: taxed at your income slab rate
- LTCG on transfers ON OR AFTER July 23, 2024: 12.5% WITHOUT indexation (flat rate)
- LTCG on transfers BEFORE July 23, 2024: 20% WITH indexation (Cost Inflation Index applied)
Special case: if you bought the property before July 23, 2024 but sold it after, you get two options: 12.5% without indexation OR 20% with indexation. The ITR-2 utility lets you compute both and select whichever gives lower tax.
LTCG exemption: reinvest the gain into another residential property within 2 years of sale (or construct within 3 years) and the gain qualifies for Section 54 exemption. The Rs.10 crore cap applies.
Share the purchase year and sale date if you need a specific determination.
This [capital gains tax guide for AY 2026-27](taxgarden.in/blog/capital-gains-tax-india-ltcg-stcg-ay-2026-27) has the CII table for indexation and the full Section 54 eligibility conditions.
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