Section 2(42A) – Reduction in holding period in case of immovable property, being land or building or both, to qualify as long term capital asset – Consequential amendments to be made in sections 54, 54B, 54D and 54F
Issue/Justification
The Finance Act, 2017 amended section 2(42A) so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as long term capital asset. The same is done to promote the real estate sector and to make it more attractive for investment.
Issues
(1) Consequential amendments for reducing the holding period of immovable property from 3 to 2 years is required to be made in sections 54, 54B, 54D and 54F in line with the amendment in section 2(42A). At present, these sections restrict transfer of new assets purchased for 3 years.
(2) In order to avoid litigation, clarification is required on whether leasehold rights and tenancy rights would be considered to fall within the meaning of “land and building” to avail the benefit of reduced holding period for being treated as a long-term capital asset.
(3) Ambiguity may also arise with respect to flats in a co-operative society i.e. whether shares in a co-operative society qualify within the meaning of immovable property being land or building or both to become eligible for lower holding period of two years.
Suggestion
It is suggested that:
(1) Consequential amendments may be made in sections 54, 54B, 54D & 54F so as to enable the holding period of the new asset purchased to be reduced to 2 years from 3 years in case of land and/or building.
(2) Circular may be issued/Explanation may be inserted to clarify that leasehold rights and tenancy rights are also to be treated as falling within the meaning of “land and building” for the purpose of availing the benefit of reduced holding period for being treated as a long-term capital asset.
(3) In order to avoid any interpretation issue, it may be clarified that flats in a co-operative society are also covered within the meaning of immovable property being land or building and are hence, eligible for lower holding period of two years for computation of capital gains.
