Flat Under Construction
For a flat that is under construction, when does your holding period begin and how is it computed? For this purpose, it is important to note that there is a difference between a flat which is still under construction and the possession has not been given to you by the builder, and a flat which is ready and the possession has already been taken by you. Though both are capital assets, in the first case the asset is not the flat (as it is not yet complete and, therefore, not in existence) but the right to acquire a flat, while in the second case the asset is the flat itself. You, therefore, need to determine what is it that you are selling-the right to acquire the flat or the flat itself-to be able to determine the date of acquisition.
When the asset is your right
Generally, in cases of sale of flats under construction, a tripartite agreement is entered into between the seller (who had originally booked the flat), the purchaser and the builder. Under this agreement, the seller assigns his rights to the under-construction flat to the purchaser with the consent of the builder, the purchaser agrees to pay the balance of the original purchase price payable to the builder and the builder agrees to give possession of the ready flat to the purchaser directly. The agreement assigns the right to acquire a particular flat. To find out the date of acquisition of such right, one has to determine when exactly this right came into existence.
Normally, when one books a flat to be constructed, one pays a token amount as booking charges, a letter of allotment is issued when the layout is finalized and, thereafter, an agreement to purchase is executed and registered. If you have merely booked a flat in the building to be constructed with no particular flat having been allotted to you, you cannot be said to have acquired the right to purchase a specific flat. It is only when the letter of allotment is issued that such a right can be said to have come into existence.
The purchase agreement codifies the rights between the parties, which have already come into existence after the issue of the letter of allotment. However, a safer view is that the date of signing of the agreement to purchase is the date of acquisition of such right. Subsequent registration of the purchase agreement merely grants better legal protection to such right and, therefore, it is the date of agreement and not the date of registration that would be the date of acquisition of such right. The dates of payments made for such a purchase are irrelevant for this purpose.
When the asset is your house
When you take possession of the flat which you have agreed to purchase, the right to purchase the flat gets converted into the flat itself. Therefore, if you are selling the flat after taking possession of the flat, the period of three years starts from the date of taking possession of the flat.
If you are, therefore, intending to sell the flat soon after taking possession, it is better to carry out the sale while the flat is still under construction and possession is not yet taken by you. This will substantially reduce your tax liability in respect of the capital gains, provided of course that three years have elapsed since you entered into the agreement for purchase of the flat.