I have owned a flat since 2000 and am getting rental income from the same, which is duly included in my income. I am staying in a rented house currently.
I entered into an agreement for building a house (in a gated community) in 2011 and first registered the land in my name in June 2011 itself.
Or will I get a pro rata consideration — long-term capital gain for land but short-term capital gain for house construction? Secondly, considering that I am living in a rented house, if I don't let my new house on rent (no rental income), do I need to specify or include anything under my tax return?
Venkat K
We understand that you got the land registered in your name in June 2011, but received possession of the completed building in November 2014.
As to whether the period of holding can be treated separately for land and building, the answer would be yes. In this regard, you can rely on the decision of the Madras High Court in the case of CIT Vs Dr DL Ramachandra Rao [236 ITR 51], wherein the Court held that land was an independent and identifiable capital asset and it continues to remain so ever after construction of a building.
Hence, for computation of capital gains, land and building are two separate and distinct assets. Further, the Rajasthan High Court has also held that even if the land and building are sold as one unit for a consolidated price, the assessee is entitled to bifurcate the same and the capital gain arising from the sale of the land had to be treated as long-term capital gains (CIT vs. Vimal Chand Golecha).
Accordingly, you could consider the land as a long-term asset (since it was held for more than 36 months) and avail indexation benefit while determining the indexed cost of acquisition and the resultant capital gains.
The building, on the other hand, would be a short-term capital asset and any gains on its sale would have to be treated as a short-term capital gain.
As per the tax laws, an individual can have one property as self-occupied. Since you are offering the rent received from the flat acquired in 2000 for taxes, you could treat this property as self-occupied. For this purpose, the property should either be occupied by one of your dependent family members with unrestricted access to you to use it or be vacant owing to your employment.
The writer is Partner, Deloitte, Haskins & Sells, LLP. Send your queries to > taxtalk@thehindu.co.in