Possession of a plot given however sale deed not executed. Income tax rule defined

I had bought a plot of land in 1996.  I’ve agreed to promote the identical and have acquired your entire sale consideration in January 2023 underneath an settlement of sale.  The purchaser was handed over possession of the plot in January 2023 itself and has commenced development of a bungalow on the plot. Please observe that no sale deed has but been executed.  Can this be handled as sale in FY 2022-23, underneath Income Tax Act for the aim of capital positive factors calculation or Will it’s liable to capital positive factors tax once more when the sale deed is executed and registered in FY 2023-24? For capital positive factors tax saving reinvestment what’s the interval out there and when will it start?

As per the current Income-tax provisions, any earnings or positive factors arising from switch of a capital asset throughout a monetary yr is chargeable to revenue tax in that monetary yr topic to a couple exceptions. Handing over of possession of any immovable property to the transferee partially efficiency of any contract can be handled as switch as per part 2(47) of the Income Tax Act. Since you may have handed over possession of the plot to the customer underneath the settlement to sale, for the aim of revenue tax legal guidelines, the switch has taken place.  So you may have could be liable to pay tax within the FY 2022-23 regardless of the truth that  the sale deed has been but been executed and registered.  Once this has been taxed in a single yr, it won’t be taxed once more within the yr during which the sale deed is executed and registered.

As the plot was held by you for greater than 24 months earlier than switch, any revenue on sale of it shall be handled as long run capital positive factors. On such long run capital positive factors both you possibly can pay tax at flat price of 20% on listed capital positive factors or declare exemption underneath Section 54F and/or Section 54 EC. Under Section 54F it’s essential to make investments the online sale consideration for buy or development of a residential home. The buy may be made one yr earlier than or two years after the date of sale of the plot. The development of a home must be accomplished inside a interval of three years from the date of switch of the plot. Any quantity remaining unutilized earlier than the due date of submitting of your revenue tax return needs to be deposited in a capital positive factors account with specified banks. The quantity deposited may be utilized for the aim of shopping for or establishing the home inside specified interval.

Alternatively, you possibly can declare exemption underneath Section 54EC by investing the listed long run capital positive factors in capital positive factors bonds of specified entities like REC (Rural Electrification Corporation), NHAI (National Highway Authority of India), PFC (Power Finance Corporation) or IRFC (Indian Railway Finance Corporation) inside 6 months from the date of switch.  The interval will start from the date on which you handed over the possession of the plot to the customer.  Please observe you possibly can make investments solely most upto 50 lakhs to save lots of long run capital positive factors for a yr even unfold over two yr. Likewise most quantity which you’ll put money into these bonds in a single yr is restricted to 50 lakhs in a yr.

Balwant Jain is a tax and funding skilled and be reached on jainbalwant@gmail.com and at @jainbalwant on his Twitter deal with.

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