Tax benefits on under-construction property: Why the possession date matters more than you think!
Taxpayers often get confused about taxation rules pertaining to under-construction properties in India. The under-construction or pre-possession period refers to the duration between the start of a home loan and completion of the construction of the property under consideration. As per the income tax laws, tax benefits on loan for an under-construction property can be claimed in 5 equal installments starting from the financial year in which the homebuyer gets possession of the house.
Another confusion that often arises is pertaining to capital gains tax on selling of such properties. The Mumbai bench of the Income-tax Appellate Tribunal (ITAT) recently clarified that when it comes to tax liability, the date of possession should be considered under section 54 of the Income-tax (I-T) Act.
This ruling is significant in a sense that it makes clear that tax benefits can be claimed after selling the house only when the proceeds are invested to buy a new house within a specific period. It means that when the sale proceeds from a house is invested to buy a new house, the tax one has to pay on the profit from selling the old house comes lower.
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As per the I-T laws, the new house must be purchased within one year before or two years after selling the old house. Alternatively, one needs to build his or her new residential property within three years from the date of selling the old property.
Coming to ITAT ruling, this was related to a particular case of a non-resident couple for FY2010-11. In this case, the Income Tax Department did not allow the tax exemption on capital gains. Actually, the matter is pertaining to interpretation of Section 54 of the Income Tax Act, 1961. This is mainly related to the date for claiming
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