Keeping an eye on the latest trend of the real estate industry we can very well say that nothing can be the best option for making good investment other than real estate properties. Are you the one who took the call to make an investment in property for a great future ahead? If, yes then we must say you are on the right path. But there are so many things that you need to take into consideration for making calculations as because you will be completely liable to pay the tax at the time of making transactions.
When you will take the call to sell the property the concept of holding period is very important to consider for calculating the taxation benefit earned on the capital gains. There are few things which you need to know:
What does it mean by the period of holding?
The duration or the time period for which you held purchased property with you is technically termed in financial and taxing language as holding period. It is one of the key defining factors to decide as the gain or profit which you made from the sale of the property from the taxing point of view is short term or long term. Earlier the maximum period for long-term holding of the property was 3 years but after the recent announcement made by the Union Finance Minister Arun Jaitley on February 1, 2017 the period of long-term holding of the property was reduced to 2 years.
Why is the concept of holding period so important?
Being an investor if you are targeting long-term capital gains with benefits in tax then in that case you are bound to hold the property for minimum 2 years time. When you plan to sell out the property after holding it for 3 years, the profit you will earn with be considered as long-term capital gains which will get taxed at 20% indexation. For tax saving, you can make an investment of profit earned in some other property or even in capital gains bond.
Profit made by selling the property within 3 years of acquiring will be considered as a short-term capital gain for the seller. To make the final tax calculation for the person selling the property within 3 years time, the short-term capital gain will get added with total income and tax will get calculated considering the income slab rate which is applicable for the seller/individual.
Calculating the period of holding period
For calculating the holding period for under construction property you need to consider certain ambiguities as there are multiple court judgments which were passed in different cases. The very common as well as the critical question which comes up in mind about holding period is that from which date the calculation will start as it can be calculated based on the date of booking as well as from the date of the possession given to you by the builder. Judicial pronouncements are taken into consideration for bringing clarity and there are too many views which are highly conflicting in nature.
In one of its decision regarding the flats which got allotted by Delhi Development Authority, the high court gave the verdict that the holding period calculation will start from the issuance date of allotment letter. Afterwards, Central Board of Direct Taxes gave a notification stating that for self-financing schemes of DDA; calculation will start from the date mentioned in the letter of allotment send to the buyer. But in a different court case, the high court of Bombay gave a verdict that all flats which were allotted based on tenancy rights calculation must be made from the date on which possession is given to the buyer and not from date of allotment letter issue.
But after the recent ruling, Bombay court passed the order that for developer under-construction flat, which is booked letter of allotment or even the sale agreement, can be a document which can give the buyer the power and right for acquiring of property. On the other way if in case buyer sells property just after completion of 24 months from acquiring of the right then in that scenario holding period calculation will be made from allotment date and will fall under long-term capital asset.
Again, if the buyer takes property possession, then holding period calculation will again be made from the date of possession.
Beneficial tips for the owners of property in India:
1. In case you are planning to sell the under-construction property you have, then ensure to sell that off before to take possession, and after taking into consideration that period is two years and above.
2. The developer’s terms and conditions can be different from that of Delhi Development Authority. So you being a buyer need to remain careful regarding all terms and conditions of the developer.
3. In case you are looking forward to saving tax on long-term capital gains made by you, then make sure to invest in some other residential property.