Why the ‘Date of Purchase’ Confusion Costs NRIs Money

Many NRIs invest in Indian real estate by booking a flat while it is still on paper—often years before construction is complete. They enter a builder-buyer agreement, pay in instalments, and eventually take possession. Yet when they later sell the property, one question can dramatically alter their tax bill: which date counts as the “date of purchase” for calculating the capital gains holding period?

The difference is material. If the property is held for more than 24 months (the threshold for immovable property under the Income Tax Act), the gain qualifies as long-term capital gains (LTCG), taxed at a lower effective rate with access to reinvestment exemptions under Section 54 and 54EC. If the holding period is 24 months or less, the gain is short-term (STCG) and taxed at the seller’s slab rates, with far fewer planning options. For an NRI already navigating TDS, repatriation rules and tax treaty provisions, getting this wrong can mean losing lakhs simply because the wrong date was used.

The confusion arises because under-construction purchases generate a sequence of plausible dates: the allotment letter, the builder-buyer agreement, possession, and finally the registered sale deed. While the tax department has sometimes insisted on possession or registration as the acquisition date, a consistent line of CBDT circulars and high court rulings has now settled that, for allotment-based purchases like builder or development authority schemes, the relevant date is the allotment letter—the date the right to a specific unit was first granted. The recent ITAT Delhi decision in ACIT v. Mohit Saraf (June 2026) reaffirmed this, holding that a multi-year delay in possession did not reset the clock.

What Courts and the CBDT Have Established on Allotment Dates

The CBDT’s Own Circulars: Allotment Letter as the Anchor

Two circulars form the foundation of the taxpayer-favourable view. CBDT Circular No. 471 (1986), issued for DDA self-financing schemes, states that the date of allocation is the relevant date of acquisition—not the date of possession or when all instalments are paid. Circular No. 672 (1993) extended the same principle to co-operative societies and similar schemes, clarifying it was a general rule, not a DDA-specific concession. Because these are the department’s own instructions, an assessing officer who ignores them is effectively departing from the CBDT’s stated view—an argument that has repeatedly succeeded before courts.

High Courts and the Supreme Court Back the Taxpayer

The Bombay High Court in PCIT v. Vembu Vaidyanathan (2019) held that the allotment letter date crystallises the taxpayer’s right, and subsequent payments or a formal agreement merely relate back to that date. The Punjab & Haryana High Court in Madhu Kaul v. CIT and Vinod Kumar Jain v. CIT reached the same conclusion, emphasising that it is the right to the property—not physical possession—that matters. The Supreme Court in CIT v. Poddar Cements had already underlined that ownership for tax purposes can exist without a registered sale deed, a principle the Delhi High Court applied directly to holding-period calculation in CIT v. Kuldeep Singh (binding for Delhi-based assessments, where many NRI cases are decided). Most recently, the Delhi ITAT in Mohit Saraf (2026) confirmed that even a lengthy delay in possession caused by external factors (the Commonwealth Games) did not replace the original 2008 allotment date as the start of the holding period.

Why This Hits NRIs Especially Hard

NRIs disproportionately buy under-construction properties, often as investments, and may sell them from abroad without closely tracking which date was recorded. The TDS deducted by the buyer under Section 195 is pegged to the character of the gain—if the holding period is mischaracterised as short-term, the TDS deducted will be higher, and the seller must later claim a refund. More critically, LTCG exemptions under Section 54 and 54EC become entirely unavailable if the sale is wrongly treated as short-term. And gathering the allotment letter and payment records from a builder years later, while overseas, is considerably harder than for a resident seller—making advance preservation of that paperwork essential.

Steps NRIs Selling Under-Construction Property Should Take Now

  • Locate your allotment letter now. If you still hold an under-construction property, secure the original allotment letter and the initial payment receipt. These are the primary evidence that the acquisition date is earlier than possession or registration.
  • Calculate the holding period from the allotment date. When planning a sale, confirm with your tax advisor that the 24-month count runs from the allotment letter, not the registered deed. If more than 24 months have passed, the gain is long-term and you can plan for LTCG exemptions.
  • Ensure TDS is deducted at the LTCG rate (if applicable). Provide the buyer with documentation supporting the earlier acquisition date so that TDS under Section 195 matches the long-term gain rate, avoiding a large refund claim later.
  • Be ready to cite the authorities. If the assessing officer questions the date, present CBDT Circulars 471 and 672, and the Delhi ITAT ruling in Mohit Saraf (or the earlier high court decisions). The department’s own circulars carry significant weight at the assessment stage.
  • Check whether exemptions under Section 54 or 54EC apply. Since these are available only against LTCG, using the correct allotment date may unlock reinvestment options that would otherwise be lost—potentially saving lakhs in tax.