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Income Tax Implications, For Treating Constructed Flats And Offices As Capital Assets

Courtesy/By: Shubham Mathur | 24 Oct 2018

The income tax laws provide various heads of income, for taxation, depending on the nature of activities carried out by you. One particular income may be taxed under the head ‘Profits and Gains of Business or Profession’ or under the head ‘Capital Gains’, depending on whether you are regularly trading in the asset or you are an investor of the asset.

This proposed provision will hit developers hard, when they decide to let out the unsold flats and constructed offices that have remained unsold, as these may be treated as conversion of stock in trade into capital asset. At what moment the unsold flats are deemed to have been converted into or treated as capita asset, will depend on the circumstances of each case.

The developer sells the property which is treated as a capital asset; he will have to pay capital gains tax, on the appreciation between the date of such conversion and the date of actual sale. For the purpose of computing the capital gains, the fair market value on the date of conversion will be taken as cost. If the property is held by the developer for more than two years after such conversion, the profits made on such sale will be treated as long-term capital gains and will be become taxable at 20.80 per cent. However, the developer will be entitled for the benefits of indexation, which will be available from the date on which the flat is converted into a capital asset.

Courtesy/By: Shubham Mathur | 24 Oct 2018