Personal Finance

Tax Query: Is flat registration must for claiming long term capital gains?

Sudhakar Sethuraman | Updated on May 30, 2021

I have a flat in one of projects of Amrapali Group in Noida. The builder did not complete the projects on time and the money collected from home buyers was fraudulently utilised for personal purposes. The projects are now under the court receiver and the builder is behind the bars. I booked the flat under construction linked payment schedule and the first payment was made on April 5, 2010 and the last payment on February 1, 2014. The total payment, including service tax, made to the builder comes to ₹40.36 lakh. The flat was handed over to me on September 11, 2014. Though I have already received possession of the flat, registration is not done as the builder was not cooperating. The process for registration has already started and my documents have been verified successfully by the court receiver.

If I sell my flat now before registration, can I claim the benefit of long term capital gain tax if I use the sale proceeds to buy a new flat/new house in my native place at Kerala? Is registration of the flat a necessary condition for claiming long term capital gains tax?

James Thekkan

As per Income Tax Act,1961 (the Act), gain arising from the sale of a capital asset is taxable under the head “capital gains”. Further, the gains will have to be sub-classified into long term or short term depending on the period of holding of the asset. This, in turn, would also determine the rate of taxation of the gain, deductions that can be claimed and associated conditions.

A land/building is considered as a long- term capital asset (LTCA) if it is held for a period of more than 24 months. Further, the period of holding of such LTCA is to be reckoned from the date it was first held by the the assessee. Also, CBDT vide circular no. 672 (16.12.1993) read with 471 (15.10.1986) has held that “the allottee gets title to the property/flat on the issue of the allotment letter and the payment of installment is only a follow up action and taking the delivery of possession is only a formality.”

Based on the above, your flat qualifies to be LTCA as it is held for a period of more than 24 months. The resultant gains on sale of LTCA will qualify as Long-Term Capital Gains (LTCG) and taxable at the rate of 20 per cent as per section 112 of the Act, with applicable surcharge and cess.

Please note that given the background of your case,documentation will play a crucial role in asserting your ownership to the property. Given that the flat qualifies to be a LTCA and you wish to invest the sale proceeds received from the sale of flat in another house property at Kerala, you shall be eligible to claim exemption u/s 54 of the Act, provided the other conditions mentioned therein are duly satisfied. Registration of the existing flat is not a pre- condition to claim exemption u/s 54 of the Act.

The above position has been upheld by ITAT Bangalore in case of Shri Basheer Noorullah Khan Vs CIT(A) ( ITA No. 575/Bang/2019) and Delhi High Court ruling in case of Balraj Vs. CIT as reported in 254 ITR 22. However, it is not free from litigation and needs to be contested appropriately at the higher level.

It is pertinent to note that the definition of ‘transfer’ in relation the capital asset has specific reference to ‘Transfer of Property Act, 1882’ (TOPA) under the Act and as per Section 53A of the TOPA, registration of documents/agreement is mandatory. Thus, if an agreement is not registered, then it shall have no effect in law for the purposes of section 53A.

Besides this, there are other laws in India viz. the Registration Act, Indian stamp Act, etc. which mandates the registration requirement of immovable property which needs to be analysed separately. In view of the above, if the case is selected for audit/scrutiny, the tax officer may ask for the registered purchase/sale deed to analyse the exemption claimed.

The writer is Partner, Deloitte India

Send your queries to

Published on May 30, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.