NRI and sold under-construction property? Know this
The legal framework: what the Income Tax Act actually says Section 2(29A) defines a "long-term capital asset" as a capital asset held for more than
The legal framework: what the Income Tax Act actually says Section 2(29A) defines a "long-term capital asset" as a capital asset held for more than the period specified in Section 2(42A). Section 2(42A) sets that period for immovable property (land, building, or both) at 24 months-this is the current threshold following the Finance Act 2017 amendment, which reduced it from the earlier 36-month requirement specifically for immovable property (other capital assets retain different thresholds). Booking/allotment letter-when the builder or authority formally allots a specific unit to you, usually against a token or initial payment. Builder-buyer agreement/agreement to sell-the detailed contract, often signed somewhat later, sometimes after further payment. Possession-when the flat is physically handed over, post-completion. Registered sale deed/conveyance deed-the final legal transfer of title, which can happen years after possession in some cases. What CBDT's own circulars say CBDT Circular No. 471, dated October 15, 1986-issued specifically for DDA (Delhi Development Authority) self-financing scheme flats. It states that an allottee under such a scheme acquires a right to the flat on issuance of the allotment letter and that this date-not the date of possession or the date all instalments are paid-is the relevant date of acquisition. Payment of instalments was treated as a follow-up administrative act referable back to the original allotment. CBDT Circular No. 672, dated December 16, 1993-extended the same self-financing-scheme logic beyond DDA to co-operative societies and similar house-building schemes, confirming it wasn't a DDA-specific concession but a general principle applicable to comparable allotment structures. The case law A note on redevelopment (surrendered flats, alternate accommodation) Why this matters, especially for NRIs? Under-construction purchases are the norm, not the exception, for NRIs buying in India-often bought years in advance as an investment or for eventual retirement, then sold from abroad well after possession, sometimes without the seller closely tracking which date was recorded where.? TDS at sale is calculated with reference to whether the gain is long-term or short-term-under Section 195, the buyer is required to deduct tax at the rate applicable to the actual character of the gain, and getting the holding period right up front avoids a mismatch between TDS deducted and tax actually due, which otherwise has to be sorted out through a refund claim after filing.? Access to reinvestment exemptions turns on LTCG treatment-Section 54 (reinvestment in another residential property) and Section 54EC (capital gains bonds) are both available only against long-term capital gains. If a sale that should have qualified as LTCG (using the correct allotment-date holding period) gets mischaracterised as STCG because only the registration date was considered, these exemptions become unavailable entirely-not just less favourable.? Documentation from years ago is harder to produce from abroad.
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