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Taxability LTCG or STCG where property allotment, possession, and conveyance happen in different years

 


📘 Title: Long-Term or Short-Term Capital Gain? A Deep Dive into Real Estate Taxation with Allotment, Possession & Sale Dates

🧾 By CA Bhavesh Panpaliya | +91 8888755557

🔍 Introduction

One of the most debated issues in real estate taxation is the determination of the holding period for capital gains. Especially in cases where property allotment, possession, and conveyance happen in different years, taxability under Long-Term Capital Gains (LTCG) or Short-Term Capital Gains (STCG) becomes confusing for many.

Let us understand this with a real-life styled case, backed by legal provisions and judicial precedents.

🧱 Scenario in Focus

A flat buyer has the following timeline:

  • Allotment Letter: Received in 2010 from the builder.
  • Possession of Property: Taken in 2018.
  • Conveyance Deed Executed: In 2024.
  • Sale of Property: In 2025.

Question: Will the gain be taxed as Long-Term Capital Gain (LTCG) or Short-Term Capital Gain (STCG)?

⚖️ Legal Framework – Section 2(42A) of the Income Tax Act, 1961

The key to determining LTCG or STCG lies in Section 2(42A):

If a capital asset is held for more than 24 months immediately before the date of transfer, the gain arising is treated as Long-Term Capital Gain.

But here's the complexity — what is the actual "date of acquisition" of the property?

📚 Judicial Precedents: Holding Period Starts from Allotment, Not Possession or Conveyance

Numerous court rulings clarify that the date of allotment is crucial for determining the period of holding.

✅ Key Case Laws:

  1. CIT v. K. Ramakrishnan (Kerala HC, 2013)
    • Held that date of allotment is to be considered as the date of acquisition of the property.
  2. ACIT v. Sanjay Kumath (ITAT Indore, 2021)
    • The taxpayer received allotment in 2005, possession in 2009, sale in 2011 → LTCG allowed based on the allotment date.
  3. Vinod Kumar Jain v. CIT (P&H HC, 2012)
    • Even if possession was given much later, date of allotment is relevant.

📌 CBDT Circular No. 471 (dated 15.10.1986) & Circular No. 672 (dated 16.12.1993):

These circulars clearly state that allotment of flat under a housing scheme confers rights in the property and is considered as acquisition.

🔍 Application to Our Case

  • Allotment: 2010
  • Sale: 2025
  • Holding Period = 15 years

✅ As the asset is held for more than 24 months from the allotment date, the gain will be treated as Long-Term Capital Gain (LTCG), irrespective of the possession or conveyance dates.

📊 Capital Gains Calculation Example

Let’s assume:

  • Allotment Price in 2010: ₹30 lakhs
  • Indexed Cost (using CII from 2010 to 2025): ₹30 lakhs × (348/167) = ₹62.5 lakhs
  • Sale Price in 2025: ₹90 lakhs

LTCG = ₹90 lakhs – ₹62.5 lakhs = ₹27.5 lakhs

✅ Taxable @ 20% with indexation benefit now after 23/07/24 no indexation available LTCG (90-30=60) and tax 12.5% i.e.750000 
✅ Eligible for exemptions u/s 54, 54EC, 54F if reinvested

💼 Professional Advice:

If you're selling a property acquired via allotment from a builder or authority, keep the allotment letter safe — it's the most crucial document to prove the holding period for LTCG eligibility.

Also, note:

  • Registration or possession dates DO NOT affect LTCG classification.
  • Conveyance deed delay does not change the “date of acquisition” for tax purposes.

🚨 Beware: Exceptions Can Arise

  • In case of transfer of allotment rights before possession, tax treatment may differ.
  • If allotment rights are sold before registration and no possession is taken, it may be taxed as capital gains on rights, not immovable property.

✅ Conclusion

In our case, since the flat was allotted in 2010 and sold in 2025, the gain is long-term in nature. The date of possession (2018) and conveyance (2024) do not alter the period of holding for capital gains computation.

👉 Always consult  CA with allotment and sale documents before filing returns or claiming exemption.

📌 Need help in calculating capital gains tax or planning exemptions?
📞 Contact: CA Bhavesh Panpaliya – 8888755557

 

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