Sold an under-construction flat? Your holding clock likely starts at allotment, not possession.

Sell a flat that spent time under construction, and one question decides most of your Indian tax: when did your 24-month holding clock start?

The stronger answer is the allotment date, the day the builder or authority issued your allotment letter, not the day you got possession or registered the deed. The tax board itself took this view for authority allotments back in 1986 (CBDT Circular 471), extended it to similar schemes in 1993 (Circular 672), and courts, including the Bombay High Court, have applied the same logic to flat allotments.

Why it matters: cross 24 months and you're long-term at a flat 12.5%. Fall short and the gain stacks on your income at slab rates. The catch: the department often argues for the possession date, so this is a position you document and defend, not a box you tick.

Immovable property turns long-term once you cross 24 months of holding (Section 2(42A); the Income-tax Act 2025 keeps the same test). For an NRI, long-term means a flat 12.5% plus surcharge and cess, with no indexation; the option residents kept, to pay 20% with indexation on older property, does not apply to non-residents. Short-term means slab rates on the whole gain.

Under-construction flats sit right on this fault line, because two to four years routinely pass between allotment and possession. Count from allotment and most sales are comfortably long-term. Count from possession and the same sale can turn short-term overnight.

Selling before possession adds one more wrinkle. What you transfer then is your rights under the builder agreement, and the department can argue those rights are not land or building at all, which would push the long-term line from 24 to 36 months. Past 36 months from allotment, both readings land long-term; between 24 and 36, the position needs its strongest paper.

The logic comes from the tax board's own circular: once the allotment letter is issued, the allottee gets title to the flat, the instalment payments are follow-up action, and taking possession is a formality (CBDT Circular 471 of 1986, extended to similar society and institution schemes by Circular 672 of 1993). The Bombay High Court used the same reasoning to hold that the date of allotment is the date of acquisition (PCIT v. Vembu Vaidyanathan, 2019), and tribunal benches have followed it for builder flats.

What holds the position up is the paper:

The cleaner the trail from allotment letter to booking payment, the harder the position is to dislodge.

Not fully settled. Assessing officers regularly take the possession or registration date, especially when the gap flips a long-term claim to short-term, and some rulings have gone the department's way on weaker facts: token booking amounts, allotments that were later reshuffled to a different unit, or agreements that never got stamped.

In practice, sellers with a clean allotment letter and payment trail commonly take the allotment-date position and disclose it plainly, and it has typically held up on appeal. What you shouldn't do is take it casually. Know that you may have to defend the date, and weigh that against what the two dates do to your tax.

When the seller is an NRI, the buyer deducts under Section 195 (now Section 393(2) of the Income-tax Act 2025) on the full sale price, not the gain. Long-term, that's 12.5% plus surcharge and cess, roughly 13% to 15% all-in. If the sale is treated as short-term, the deduction runs higher still, at slab-linked rates. So the allotment-versus-possession call changes the buyer's withholding too, not just your final tax.

The first place the position gets tested is the lower-TDS application (Form 128, formerly Form 13), filed before the sale so the buyer withholds on your real gain instead of the full price. The application states your acquisition date, so the officer sees the allotment-date claim upfront.

A CA who handles NRI sales does four things here: fixes the defensible acquisition date from your papers, computes the gain both ways so you know the stakes, files the lower-TDS application on the stronger position, and prepares the return so the date reads the same everywhere. Inconsistency between the certificate, the deed and the return is what invites the notice.

Q: Does my holding period start at allotment or possession?

A: The better-supported position is the allotment date. The tax board's circulars treat the allotment letter as the point the allottee gets title (CBDT Circular 471 of 1986, extended by Circular 672 of 1993), and the Bombay High Court applied the same logic in 2019. The department often argues for possession, so document the position properly.

Q: What makes the allotment date defensible?

A: Paper. The dated allotment letter, the builder-buyer agreement, the payment schedule with receipts, and bank statements showing the booking money moved at or around allotment.

Q: I sold before taking possession. Does allotment still count?

A: Yes, in substance, with one wrinkle. Courts have counted the holding from the allotment date for pre-possession rights transfers too. But the department can argue those rights are not land or building, pushing the long-term line to 36 months. Past 36 months from allotment you are safe on either reading; between 24 and 36 is where it gets contested.

Q: How much tax does the difference make?

A: Long-term (more than 24 months) means a flat 12.5% plus surcharge and cess for an NRI, with no indexation. Short-term means slab rates on the whole gain, which can be more than double the tax.

Q: What TDS will the buyer deduct?

A: Section 195 (now 393(2)) on the full sale price. Long-term that's roughly 13% to 15% all-in; short-term is deducted higher. A Form 128 (formerly Form 13) certificate filed before the sale brings the deduction down to your actual gain.

Q: Can the tax officer reject the allotment date?

A: They can try; this area is litigated. Positions backed by a clean allotment letter and payment trail have typically held up on appeal. Keep the date consistent across the certificate, the deed and the return.