When it comes to property sales, there are always questions regarding taxes, date of sale and date of construction, and other adjustments.
A friend of mine recently sold his house, which he had constructed in 2007, and asked me what proof he would have to produce when he filed his tax returns, since there wasn’t any proof of sale agreement or any other papers that established that the house had been constructed on a specific date. Such proof would have been possible if the house had been purchased (the date of registration would be considered in such cases).
When we say ‘from the date of construction’, the official proof of such a date that is considered valid at the time of filing taxes after the sale of such a property is any one of the following:
The conversion of a temporary electricity line into a permanent one. You can get an approval letter from your state electricity board
Second, the invitation card for your house-warming ceremony is considered proof. Ideally, keep both proofs ready.
Further, in case of purchase of flat, apart from the date of sale deed registration, documents such as Occupancy Certificate or Possession Letter can be produced to establish the actual date of purchase. Often, there is a huge time lag between the date of registration and the date of occupying the flat. Under such circumstances, the Occupancy Certificate issued by the Municipal Corporation along with the Possession Certificate issued by the builder of the apartment can be produced as proof of purchase date.
A reader who had purchased a house in August 2010 wrote in to say that for some pressing reason, he needs to sell the property by May 2013 and how he could avoid taxation. In this case, since he has to sell the property less than three years from the date of purchase, he cannot get the benefit of reinvesting the proceeds in another property to avoid short-term capital gains tax. The sale proceeds will be treated as short-term capital gain.
For all short-term capital gains, the income earned from the sale of property is added to the individual’s overall income in the year of sale, and taxed according to the tax slab under which the individual falls (10, 20 or 30 per cent). Even if the sale proceeds are invested in another property within two years or a house constructed within three years, if the property sale happens within three years of the purchase, short-term capital gains tax cannot be avoided.
