Under which head Income from sale of Flat will be taxable(in case of installment payment)

[CABIJENDERKUMAR BANSAL]

Dear All, One of my friend book a flat with omaxe. and paid Rs. 100000 as booking amount. Possession to be made after 2 year. 4 Inslalment of Rs.500000/- to be made half yearly. Now he had paid 2 instalment of Rs.500000/-. Today he need money, he want to sold this flat. Amount receivable from one vendor is Rs. 1500000 against Rs.1100000 which he paid . Whether it is capital gain or other income. This income will be taxable under which head. If answer is differ if such flat is sold after one month from the date of getting possession (All payment of instalment i.e 2100000/ has been made). Sale price of Rs. 3000000/- now Rs. 900000 is capital gain if yes then it is short term or long term. Period. Please provide valuable suggestion. Thanks Ca. B.K.BANSAL

[DEV KUMAR KOTHARI]

Dear CA Mr.B.K.Bansal, It appears that the contractual rights will be surrendered to the vendor by way of cancellation of contract and receiving back advance with some add on amount. The add on amount can better be considered as short term capital gain because the booking is a short term capital asset and it get extinguished which amount to transfer of capital asset. If the flat was booked for trading, then gain wil be business income. In case flat is sold one month after taking possession there will be short term capital gains. In future, please take care to give facts in clear terms. Two or more situations can be given separately. Alternatively your friend can receive add on amount as interest from vendors, if that suits your friend. In taht case TDS can cover advance tax liability and liability of interest etc. have a brain storming your self. Being yourself a CA we expect preliminary ground work from you as querist. Placing simple question like whether flat sale after one month from possession, will result into STCG or LTCG is not a good question from a CA. Such questions may create wron impressions and cause impariment of goodwill of your self as well as CA profession. So while placing questions, we must be carefull of fact that we are considered as an expert in the field of taxation.

[CABIJENDERKUMAR BANSAL]

Thank you very much for your valuable feedback & advise.

AI Summary

Short-term capital gain: add-on on cancelled or quick-resold booked flat treated as taxable capital gain rather than revenue receipt. When a purchaser's contractual right in a booked flat is surrendered or the flat is sold shortly after possession, the add-on or sale proceeds are taxable as a transfer of a capital asset and normally treated as short-term capital gain if the booking/right is a short-term capital asset; if the flat was held as trading stock, receipts will instead be business income. An alternative characterization as interest yields different tax consequences.