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LTCG or STCG on sale of property

Dhruv Jain (Practicioner) (208 Points)

19 June 2025

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.

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Rama chary Rachakonda (Master in Accounts & high court Advocate email ID:ramachary64@gmail.com voice no:9989324294) (8266 Points)
Replied 19 June 2025

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.