Allotment Letter is adequate evidence in order to get a tax deductible
In a recent case, the bench of Income Tax Appellate Tribunal (ITAT) in Mumbai has upheld that the letter of allotment from the builder is sufficient proof of investment in a new house. Now the benefit which the tax payers can derive from this decision is that a taxpayer is entitled to a deduction from long term capital gains (LTCGs) made on sale of a house or any other capital asset like land or commercial property if investments are made in a new house.
This deduction in furtherance reduces the taxable component of the capital gains and results in a lower outgo of tax which is whole is extremely beneficial to the tax payers. For example, if the entire amount of long-term capital gains is invested in a new house, the tax payer does not have to pay any tax on the capital gains. The present judgement benefits the taxpayer in the sense that now only a letter of allotment is required to prove that an investment into a new house has been made. If the tax payer decides to invest the long-term capital gain in this new house then he won’t have to pay any tax on the capital gain.
The present judgement by the ITAT has made the process of getting tax deductions easier and smoother in comparison to the past where they had to wait for the ‘Agreement to Sell’ by the builder which was also delayed due to various circumstances. All these benefits subject to certain conditions such as the time frame within which the new house must be purchased are present under section 54 and 54-F respectively of the Income Tax Act. In the following case, the Income Tax Appellate Tribunal took heed to the fact that the tax payer had paid a substantial amount on the basis of the letter of allotment and should therefore be eligible for the benefit of exemption on reinvestment in a residential house.
What is of importance here is not the acquisition of the legal title of the property but the acquisition of substantial domain over the new property being acquired. Therefore, by getting the letter of allotment by paying a substantial amount, the tax payer may not get the legal title of the property but acquires a substantial domain over the property being acquired which should make him eligible to derive the benefit of exemption of reinvestment. When filing for a tax deductible an Income Tax officer usually looks for evidence to substantiate the tax deduction claimed in the tax returns.
In the present case, the Income Tax Department had denied the deductions from the long term capital gains claimed by the tax payers. In contention, it was argued that the amount paid by the tax payer under the letter of allotment are in the nature of an advance to the builder and should therefore be enough evidence to get a tax deductible. This is exactly what was held by the Income Tax Appellate Tribunal.
For more info on tax related issue regarding realty projects, one can contact top/expert Tax Consultant Lawyer Advocate in Chandigarh Panchkula Mohali.
This post is written by Aradhya Singh. For more info, dial 7888-356908.
I sold a property on 15th April 2021 and to claim LTCG exemption I have booked another property in 2021. The allotment has been made to me and the agreement to sell executed. The new property is under construction and possession will be given in 2024. Can this purchase be used to set off LTCG under sec 54 arising from the on the sale of property in April 2021.