Exemption of long term capital gain

[pran shangari]

I have received the allotment letter for a flat and I have also paid 80% of the agreed amount to the builder/society in two years time.Since I am getting a good price for my flat I have made an agreement to sale with the prospective buyer.The right in the flat is transferred through the society to the buyer after holding it for more than 36 months.I want to invest in a new house propery.My query is as follows: 1. Under what section I will Claim Exemption of Long term capital gain and why?

[Rama Krishana]

Whether the income generated from sale of house property constitute as long term gain or not should be decided first. Once it is established that the transaction is in the nature of transfer of long term assets and income arising out of transfer of such assets is long term capital gain, you are entitled to get the exemption of gain if you invest in a residential house property. For this purpose you may refer to provisions of section 54 of Income Tax Act, 1961 in detail.

[pran shangari]

Thanks for your reply.Let me put it this way.The flat is not complete and no possession given even though more than 36 months have elapsed.I have transferred the allotment letter in favour of the purchaser.The balance instalment will be paid by him and he will take possession of the flat when completed.I have received the a certain amount which is more than the original value of the flat.Ofcourse the purchaser has deducted the amount of instalments payable by him.Now let me know as to whether the excess received by me is gain or not. If yes than under what section 54/54f i can claim exemption.

[Rama Krishana]

Merely execution of transfer deed is not sufficient to prove that sale has taken place on the date of execution of transfer deed. The actual date of sale is the determinant factor. In you case, you need to ascertain whether you have sold the flat under construction before execution of sale deed.

AI Summary

Long term capital gain: exemption depends on whether assignment of an allotment constitutes a transfer and qualifying reinvestment.
Whether the excess received on assignment of an allotment letter is a long term capital gain depends on whether that assignment constitutes a taxable transfer of the capital asset and on the factual date of sale; if treated as a long term transfer, exemption may be claimed by reinvesting in residential property under the statutory exemption framework (commonly invoked via section 54/54F), subject to holding period and reinvestment conditions.