Sale of three-year-old parking space will be treated as LTCG: Analysts

According to another expert, whether parking space can be sold depends on the nature of the space concerned. It must conform to the definition of garage, as provided in the RERA.

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai bench, held that the capital gain from sale of car parking spaces independent of a flat was short term in nature.
 

In the wake of this ruling, let us understand the rules governing the sale of parking space, and the taxation of gains from such sales.
 

Is selling permitted?

According to the laws of most states, car parking spaces are a common area. Developers, therefore, can’t sell such spaces independent of the flat.
 

Pratyush Miglani, managing partner, Miglani Varma & Co — Advocates, Solicitors and Consultants, says, “To circumvent this rule, developers have begun to incorporate the price of car parking space in the total price of the flat itself, instead of showing it as a separate head.”
 

According to another expert, whether parking space can be sold depends on the nature of the space concerned. It must conform to the definition of garage, as provided in the Real Estate Development and Regulation Act (RERA).
 

Moiz K Rafique, managing partner, Privy Legal Services LLP, says, “The Act defines a garage as a place that has a roof and walls on at least three sides. Parking spaces that don’t meet this definition can neither be sold by the builder to members nor by one member to another.”
 

Once a parking space has been sold to an allottee, there is nothing in RERA that prohibits its purchase and sale among the members of a residential complex or society. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors says, “The rules of the society may, however, have certain restrictions in this regard.”
 

Miglani, too, adds that rules in this regard can vary from one state to another.
 

Taxation of capital gains

Tax experts say irrespective of whether or not the sale of parking space is legal, if there is a sale, the seller must pay tax on gains.

Naveen Wadhwa, deputy general manager, Taxmann, says, “Taxation has nothing to do with legality. If there is an income, tax rules apply.” The tax rules that apply to a house, which is land and building, don’t apply to parking space. “A parking space is not land and building but falls under ‘rights to land and building’,” he says.

Gain from a property sold within two years from the date of purchase is treated as short-term capital gain. If sold after two years, it is treated as long-term capital gain (LTCG).

 

Gain from sale of parking space is taxed differently.

Wadhwa says, “If the parking space was owned for less than three years, the capital gain on its sale is treated as short term, and long term if it was only for longer.” The rate of taxation is as follows.

Balwant Jain, a Mumbai-based tax and investment expert says, “Short-term capital gain is charged at slab rate. Long-term capital gain is taxed at 20 per cent, excluding cess and surcharge.”
 

Section 54 benefit

Whether the sale of parking space qualifies for tax exemption under Section 54 depends on the nature of the sale.

Bajaj says, “If the parking space is sold independent of the flat or house to which it is attached, the taxpayer may not be able to claim the benefit of exemption under Section 54.

This benefit will only be available if the parking space is sold as an integral part of the flat or house, subject to fulfilment of other requirements under the Act.”
 

Taxation of rent

The taxation of income from renting out parking space depends on the type of space. Jain says, “If it’s a part of the house, the income will come under the head ‘income from house property’. But if it’s independent of the house, it will come under the head ‘income from other sources’.”