Date of acquisition for capital gains in case of sale of residential property

Real estate has been the most dynamic and evolving segment of the economy.  In the erstwhile era, while our forefathers would purchase and immediately register the property in their name.  However, in the present era, the property is purchased and the installments are paid on the basis of stage of completion.  On completion of the project, the possession certificate and occupancy certificate will be handed over to the purchaser and the registration process would be completed

In this regard, the question arises what should be the date of acquisition of the property.  This becomes a relevant date to determine capital gains tax.  When the house property is sold, the capital gains classified as long term or short term based on the period of holding. 

It becomes important to understand the following:

Allotment letter:  in case of under-construction property, the builder provides an allotment letter to the purchaser.  This letter encompasses details regarding the flat, the payment options and any extra charges etc. It also includes the construction schedule, house plans, delivery date and builder’s liability in case of late completion or problems after possession. Generally, it is issued to you upon payment of the 15 per cent of the property value to the developer.

Possession certificate – A possession certificate is issued by the builder in favour of the purchaser incorporating the date of possession of the property.  It is provided after the builder gets a completion certificate from the designated authority.

Occupancy Certificate –Upon the completion of the project, the local government authorities issue occupancy certificate, certifying that the project has been built by adhering to the applicable regulations.

These three are important events at the time of purchase of under construction property. There have been multiple controversy on the date of acquisition.  Based on the CBDT circular No. 672, dated 16-12-1993 “It was clarified therein that cases of allotment of flats under the Self-Financing Scheme of the Delhi Development Authority (DDA) should be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act.”.

Given the above circular, it can be concluded that date of acquisition would be the date of allotment letter and capital gains would be computed accordingly.

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