Tax Benefits on under construction property

Bangalore: The sudden rise in property prices in India, mainly in larger cities like Mumbai and Bangalore positioned homebuyers in a providential position. The individuals who booked the flats years prior at old booking rates are enticed to sell their flats which are still in the under construction stage. As the flats are imposing high prices compared with the price at the initial booking stage.

One who sells the under construction property not only gains profit and there is a chance to get an exemptions from Tax. Selling the under construction property is better compared to carrying out the sale after taking possession. According to the Income Tax Act, the residential property is considered as a “Capital Gains” and gains come up from the sale is calculated under the head Capital Gains. The profit of the Capital Gain ought to be invested in the reinvestment residential property within two years or one year from the date of transfer or it can also be used for the construction of a residential property within three years of time period from the transfer date.

Every individual should differentiate what is under construction property and asset is the flat. A property which is still in under construction stage, where the ownership is not yet given by the builder/developer, with a right to obtain a property is under construction property. The flat which has completed the construction, where the ownership is already given by the builder, in such case asset is the flat. Both under construction property and flat come under capital assets.

The Income Tax Act under Section 54 tax exemptions takes place. In case of sale of under construction property an agreement is entered by the seller, builder and buyer. In this agreement with the permission of builder the seller converts his rights in the form of possession and assigns his right to the buyer. An individual who has paid booking charges as a token amount and received an allotment letter has a right to sell an under construction property; the people who have booked starkly without receiving any allotment letter is not allowed to sell property under construction as they didn’t acquire allotment letter to sell a particular property.

The right of selling an under construction property comes into existence where there is an issue of an allotment letter. The Purchase agreement offers legal fortification to such right.

According to Income tax Act Section 54EC, if the capital gain is invested within a 6 month period of time in precise capital gains bonds of Rural Electrification Corp (REC) or National Highway Authority of India (NHAI), capital gain contoured from the transfer of a long term capital asset would be exempt. Long term gains are taxed at 20 percent with beneficial totaling by manifesting the cost of acquisition. To save capital gains tax, one should invest capital gain in specified investments like 3 years bonds of NHAI within a six month period of time.

One who purchases a new house within two years period of time from the sale of under construction property can also avail tax exemption.

Tax Benefit on Sale of Under Construction Property:

One who has right to sell the property without receiving possession from the builder can carry out the sale when the property is in under construction stage as it significantly reduces the tax liability in respect of capital gains. If the individual sells the property after acquiring ownership the three year period comes into existence from the date of taking possession.