Can Long Term Capital Gains Arise On Selling Flats Before Possession

So many times tax payers have asked whether the booking date is at all material for determining the capital gains  or possession date or registration date is crucial. taxworry.com has posted numerous article on this topic . For example , Flat Allotment Date is Crucial for the Capital Gains  and second article  was Can Date of Sale Agreement Be Taken As The Date of Purchase of Right in A Flat?

Same confusion is faced by Sri Bhupinder of Gurgaon who asks

I booked from builder under construction flat in Aug 2006 . It will be ready for possession in Oct 2012 . I want to know the following .
1) If I sell before possession , will the gain be LTCG ?
2)  If I sell immediately after possession ( means after registry in my name ) ,  will the gain still be LTCG or I have to wait another 3 year after possession to avail LTCG ?
Please clarify

So without elaborating more , the specific answer to his question is as that if he sells the flat before taking

possession , he is selling his right on the flat allotted by the builder to another person . Therefore the , the total price paid till the date of sale will be cost of Right in flat .

If the booking date has crossed 36 months , the gain on the sale of Right shall be treated as Long term capital gains . In your case , if you sell before taking possession , the LTCG should be computed by indexing the cost  year wise and the reducing from the price received for forsaking the Right on the flat.

If you sell after possession of the flat , there may be still be long term capital gains , if the price of the flat was paid much before the date of possession . Although , the income tax department will surely create problem , if your case is selected for scrutiny, you will get relief from appellate authorities. But , please note that only if the 95 % payment was done three years before selling date of the property.

Best decision is to sell without talking possession and claim the LTCG !