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

Calculating Capital Gains on Canceled Flat Booking: Right to Own Considered a Capital Asset, Indexation for Over 36 Months An individual inquired about calculating capital gains from a canceled flat booking, where payments were made over several years and a refund was received upon cancellation. The first respondent suggested that the right to own the flat, rather than the flat itself, was transferred, and advised segregating payments into long-term and short-term based on the duration before cancellation. The second respondent emphasized that the right is a capital asset, with indexation benefits applicable if held over 36 months, and suggested treating payments as costs of improvement, using the refund as the full value consideration without segregation.