Computation of Capital Gain in series of EMI payment

[SHOEB VAPIWALA]

The Assessee has paid to book a flat as under: A Y: 2009-10-Rs.6,00,300/- (w.e.f. 11/02/2010) A Y : 2010-2011 - ₹ 9,44,920/- A Y : 2011-12 ₹ 13,77,466/-and A Y: 2012-13 ₹ 2,80,140/-(last: 13/08/2014) - Total ₹ 32,02,826/- paid up. On cancellation on 01.07.2014 the Builder paid ₹ 43,23,398/-. Will you advise how to compoute Capital Gain?Thanks

[K.S.AIYAR & CO.]

My view on the issue is as under:

From the facts provided by you, it appears that you acquired a "right" to own a flat but gave up the same before completion of construction or getting physical possession of the flat.

With this assumption, what is transferred is "right" to own a flat and not the flat per say. The EMI paid prior to 3 years from date of transfer shall be considered as Long Term and those for less than 3 Years as short term. Allocation of the consideration received between LT and ST can be a challenge but an acceptable method would be to do so in proportion of payments made in respective years. Another option could be to calculate rate of return and allocate consideration on that basis. Accordingly you may calculate the Capital Gains.

[Sumit Bajaj]

The right in bbuilding is a capital asset (ref explanation to sec 2(14)) and the cancellation would amount to transfer by way of extinguishment of right (ref sec 2(47)). If the period of holding of the right is greater than 36 mths indexation benefit available on the first installment and subsequent installments to be treated as cost of improvement and indexation benefit to be claimed w.r.t to the year of payment of each installment and the payment received from the builder will be fvc for the right. No need of segregation of fvc.

AI Summary

Extinguishment of right to property treated as capital asset transfer; allocation and indexation rules govern instalment refunds.
The purchaser's pre-possession contractual right to the flat is a capital asset and its cancellation with refund amounts to transfer by extinguishment; the refund is the full value of consideration. Instalments paid more than three years before transfer are long term and those within three years are short term, and allocation of the refund between LT and ST components may be done pro rata or by rate of return apportionment. If holding exceeds thirty six months, indexation applies to instalments as cost (with later payments treated as cost of improvement in their payment year).