Omar Bennett
The date of purchase is an important concept in legal and financial contexts, and it can vary depending on the specific situation and jurisdiction. In India, the date of purchase for a residential property can be a complex issue, with various dates such as advance payment, allotment letter, agreement, construction completion, and possession coming into play. The Income Tax Act offers taxpayers deductions from capital gains income tax when selling a property if they purchase another residential property within a specified time frame. This has led to disputes over whether the date of purchase is the date of allotment, registration, or possession.
Characteristics of Date of Purchase in India
| Characteristics | Values |
|---|---|
| Date of Purchase of a product | The date indicated on the original bill of sale or receipted invoice for the product from the distributor |
| Date of Purchase of a residential property | The date of agreement, date of allotment, date of registration, or date of possession |
| Date of Purchase of a residential property for capital gains exemption | The date of possession of the property |
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What You'll Learn
Date of purchase vs date of installation
In the context of India, the date of acquisition of a property is the date of agreement, not the date of registration. This was held by the Hon'ble Supreme Court of India in the case of Sanjeev Lal v. CIT (2014).
Now, when it comes to the date of purchase versus the date of installation, there can be some nuances and variations depending on the specific context and industry. Here are some paragraphs elaborating on this:
Parts & Labor Date of Purchase Repair Plan
For a Parts & Labor Date of Purchase Repair Plan, the term typically begins on the product's date of purchase. However, if applicable, it can also start from the date of installation of the covered product by the selling retailer. Proof of the installation date may be required if it differs from the product's purchase date. This date of installation is particularly relevant when it comes to aligning with the manufacturer's warranty, as the coverage often runs concurrently with it.
Real Estate and Manufactured Homes
In the context of real estate and manufactured homes, there can be multiple dates to consider, including the year built, year installed, and year manufactured. While some lenders may prefer these dates to align, it is not uncommon for there to be a discrepancy, especially if the home was exposed to the elements during storage and transport. The date of installation, in this case, refers to when the manufactured home is permanently placed on its site, which may differ from the date of acquisition or transfer of ownership.
Electronics and Appliances
When it comes to electronics and appliances, the date of purchase is typically considered the start date of the manufacturer's warranty. This is different from the EU, where the warranty period starts from the day the product is received. In the US, it is common for there to be backorders or delays, so ensuring that the company provides proper installation and delivery is crucial for warranty coverage.
Tax Implications
When dealing with tax implications, the determination of the acquisition date for a new property can be complex. Various dates come into play, including advance payment, allotment letter, agreement, construction completion, and possession. Understanding the specific tax laws and regulations, such as Section 54 of the Income Tax Act in India, is essential for claiming deductions or exemptions.
In summary, the date of purchase and the date of installation can be distinct but interconnected concepts, with the date of installation sometimes being relevant for warranty, tax, or regulatory purposes. The specific implications can vary depending on the industry, product, and jurisdiction.
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Date of acquisition of property
The date of acquisition of a property in India is a complex issue. The date of acquisition is important for computing capital gains on the sale of a property.
In 2019, the Bombay High Court held that the date of allotment will be considered the date of acquisition of the property. This was reiterated by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) in 2024. The ITAT also held that the date of possession of a new property can be considered the date of acquisition.
The Hon'ble Supreme Court of India held in Sanjeev Lal v CIT (2014) that the agreement to purchase is to be considered the date on which the property was acquired (transferred). The Delhi High Court, in CIT v Delhi Apartment Pvt. Ltd (2013), held that the payment of an advance towards the purchase of a property cannot be considered a transfer (acquisition) of the property.
The date of acquisition of a property is important for taxpayers to claim a deduction from capital gains income tax when selling a property. Section 54 of the Income Tax Act offers this opportunity if they purchase or construct another residential property within two to three years.
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Capital gain tax exemption
In India, the date of purchase is the date indicated on the original bill of sale or receipted invoice for the product from the distributor. If neither of these is available, it is the date indicated on the product activation certificate.
Now, for capital gain tax exemptions, there are a few scenarios to consider:
Agricultural Land
Agricultural land in a rural area in India is not considered a capital asset. Therefore, any gains from its sale are not subject to tax. However, if you are regularly buying and selling agricultural land as a business, the gains are taxable under the head "Business and Profession". Additionally, capital gains on compensation received for the compulsory acquisition of urban agricultural land are tax-exempt under Section 10(37) of the Income Tax Act. For other cases, exemption can be sought under Section 54B.
Residential Property
Section 54 of the Income Tax Act allows taxpayers to claim a deduction from capital gains income tax when selling a property if they purchase or construct another residential property within a specified timeframe. This timeframe is typically two to three years, as per Section 54 and 54F. It is important to note that the entire capital gain must be invested in the new property for tax exemption; otherwise, the excess amount not utilised will be subject to long-term capital gain tax.
Bonds
If an individual is not interested in reinvesting profits from the sale of a property into another property, they can invest in specific bonds under Section 54EC. These include bonds issued by the National Highway Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), or Indian Railway Finance Corporation (IRFC). The investment limit is Rs. 50 lakhs.
Long-Term Capital Gains (LTCG)
The formula to calculate LTCG tax is: Gains (minus) exemption amount * rate of tax. The exemption amount depends on the regulations, with the exemption being Rs. 1 lakh before the Union Budget of 2024 and Rs. 1.25 lakh after. The LTCG tax rate is determined by the asset type and the holding period, with profits from the sale of assets held for more than 24 months being subject to LTCG tax.
It is important to note that the information provided here may not be exhaustive, and it is always advisable to refer to the official government sources or consult a tax professional for the most accurate and up-to-date information regarding tax exemptions in India.
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Date of purchase for house property
The date of purchase for a house property is a grey area and may be litigated. The income tax department may consider the date of possession as the date of purchase. This is because, before possession, what you have is a right to get the property, which gets converted into a proper right to the property after possession.
In the case of a ready-to-move-in house, the date of the sale agreement is taken as the date of purchase. However, in the case of an under-construction property, the date of purchase would be the date of allotment or date of possession, depending on whether specific units are allotted.
The date of purchase is important for claiming capital gains tax exemptions. For instance, in the case of long-term capital gains, an exemption can be claimed under Section 54F if a residential house property is purchased within one year before the date of sale of the original residential house. Similarly, in the case of short-term capital gains, an exemption can be claimed under Section 54 if investments are made in a residential house property one year before the date of sale.
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Date of purchase for parts and labour repair plans
In the context of parts and labour repair plans, the date of purchase is crucial for determining the validity and coverage of the agreement. Here's an overview of what constitutes the date of purchase in this context:
The date of purchase for a parts and labour repair plan typically refers to the date when a product is purchased and paid for in full. This date is usually indicated on the original bill of sale, receipt, or invoice provided by the authorised retailer or distributor. It serves as proof of when the transaction occurred and marks the beginning of the agreement's term.
For parts and labour repair plans, the term of the agreement generally starts on the date of purchase of the product. This date is significant because it sets in motion the coverage provided by the repair plan. It is important to retain the original purchase documentation as proof of the date of purchase, as it may be required when making claims or seeking repairs under the plan.
In some cases, if the product requires installation, the date of installation by the selling retailer may also be considered the date of purchase. This is particularly relevant if the installation date differs from the product's purchase date. Proof of the installation date may be necessary to establish the validity of the repair plan's coverage.
It's worth noting that the date of purchase is distinct from the date of transaction, especially when it comes to card payments. The date of purchase is the date indicated on the receipt or invoice, while the date of transaction is the date when the transaction is posted to the card account.
Additionally, if the date of purchase cannot be verified through the original documentation, an alternative method of determination may be employed. In such cases, the date of manufacture of the product plus three months may be deemed as the date of purchase.
Understanding Parts and Labour Repair Plans:
Parts and labour repair plans are often associated with warranties provided by manufacturers or retailers. These plans cover the cost of parts and labour required to repair or replace defective components of a product. They are designed to protect consumers from unexpected expenses due to manufacturing defects or mechanical failures.
When purchasing a parts and labour repair plan, it is essential to carefully review the terms and conditions. These plans may have specific exclusions or limitations on coverage, such as accidental damage, vandalism, or non-manufacturer-supplied equipment. Understanding the scope of coverage will help ensure that you can make informed decisions about maintaining and repairing your purchases.
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Frequently asked questions
The date of purchase for a house property can be the date of allotment, date of registration, or date of possession. The date of possession is considered the date of actual purchase for claiming capital gains exemption under Section 54 of the Income Tax Act.
In such cases, the date of allotment or the date of possession, depending on whether specific units are allotted, can be considered the date of purchase.
The date of purchase for a Parts & Labor Date of Purchase Repair Plan is the date the product is purchased or, if applicable, the date of installation by the selling retailer.
The date of purchase for a Date of Purchase Replacement Plan is the date the covered product is purchased or the date of installation by the selling retailer.
The date of acquisition of a property is the date of agreement, not the date of registration. This was upheld by the Hon'ble Supreme Court of India in the case of Sanjeev Lal v CIT (2014).
