What are the tax implications when selling a property?

What are the tax implications when selling a property?

codingbk3112
March 21, 2024
Blog

I am considering selling my property for which I previously acquired a home loan.I had reserved this property on April 1st, 2021, and obtained the occupancy certificate by March 30th. I signed a tripartite sale agreement on 23 April. Can I claim long-term capital gains (LTCG) on this sale. Also, can I deduct home loan interest as cost of acquisition, irrespective of LTCG or short-term capital gains (STCG)? Can I deduct commissions paid as cost of acquisition irrespective of the capital gains and, Ifs, what documents are required for this? In case of STCG, is there any option to save tax?
In the event of acquiring a property within an under-construction project, there are numerous unresolved matters that have become the focus of legal disputes.
As per the Indian tax laws, an immovable property needs to be held for more than of 24 months to qualify as long-term capital asset and in such case the gains or loss on its transfer is charged as long-term capital gain/loss (LTCG/L). Else, it is considered as a short-term capital asset and is charged as short-term capital gain/loss (STCG/L).
In case of under-construction property, an important consideration is the classification of the capital asset. There is a school of thought prevailing that immovable property does not come into existence until the construction is completed and possession is granted. Hence, on the date of signing the agreement, the taxpayer only receives a right to receive the asset at a future period, upon fulfilment of defined payment and other
Specified conditions. Thus, while such right can be considered as a capital asset, the same may not be considered as immovable property for the purpose of calculating capital gain or loss. In such a case, as it is only a right that has been transferred on resale, the transfer would be considered as LTCG/ L only if the holding period is more than 36 months. If the transfer is done within 36 months, it should be considered as STCG/L.
Also, there is considerable debate on the date that should be considered as date of acquisition of the property.
To calculate capital gains or loss, the following deductions are allowed:
Expenditure incurred wholly and exclusively in connection with such transfer; the cost of acquisition of the asset and the cost of any improvement thereto.
The issue of inclusion of housing loan interest in the cost of acquisition is open to interpretations. It may be noted that effective FY 2023-24, a new provision has been inserted which provides that cost of acquisition will not include the housing loan interest claimed as a deduction from house property income. With regard to commission paid to builders and agents, the same may arguably be considered as part of cost of acquisition. However, such claim should be backed by receipts acknowledging payment from recipient.
For Short-Term Capital Gains (STCG), there are typically no deductions or exemptions for tax savings available, except for those already specified for calculating capital gains, as detailed earlier.