Capital Gains on Property Sale: Agreement to Sell or Registration?
ITAT Bangalore has reaffirmed that capital gains on a property sale arise when possession is handed over under a written agreement to sell, not when the sale deed is later registered. If you handed over possession in FY 2025-26, this affects how and when you must report gains in your AY 2026-27 return.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Section 2(47)(v), Income Tax Act, 1961 (read with Section 53A, Transfer of Property Act, 1882) — Effective: ongoing. Source: https://www.taxscan.in/top-stories/capital-gains-must-be-taxed-in-year-of-transfer-not-subsequent-registration-of-sale-deed-itat-1446479. Last reviewed by CA Harun Raaj: September 2026.
One of the most common misconceptions among property sellers — and occasionally their advisors — is that capital gains tax arises only when the sale deed is registered. A ruling from the Income Tax Appellate Tribunal (ITAT), Bangalore Bench (ITA No. 2381/Bang/2025, Prakash Chand Bethala HUF vs ITO, dated 20 May 2026) reaffirms a foundational principle of Indian tax law: capital gains arise in the year of transfer, not the year of sale deed registration.
For HNIs and promoter families filing ITR-3 or ITR-4 for AY 2026-27 (due 31 August 2026), this has a direct bearing if you handed over possession of a property in FY 2025-26 under an agreement to sell.
Key point: Capital gains arise on the date possession is handed over under a written agreement to sell, not on the date the sale deed is later registered, per the ITAT Bangalore ruling in Prakash Chand Bethala HUF vs ITO.
The Rule: Section 2(47) of the Income Tax Act
"Transfer" is defined broadly under Section 2(47) of the Income Tax Act, 1961 (carried forward under the Income Tax Act, 2025, effective 1 April 2026). Section 2(47)(v) includes:
"any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882."
Section 53A of the Transfer of Property Act, 1882 protects a buyer who has a written agreement to purchase, has paid or is willing to pay substantial consideration, and has taken possession. The Income Tax Act treats this as a completed transfer — even without formal registration of the sale deed.
In short: capital gains arise in the year when (a) a written agreement to sell exists, (b) the buyer has paid substantial consideration, and (c) possession has been handed over — not when the stamp papers are registered.
What the ITAT Bangalore Ruled
Facts (ITA No. 2381/Bang/2025): A Hindu Undivided Family (HUF) entered into an agreement to sell an immovable property on 8 March 1993 for ₹9.80 lakh and handed over possession. The sale deed was formally registered on 9 March 2007, by when the stamp duty value had risen to ₹2.7 crore.
The Assessing Officer sought to tax capital gains in AY 2007-08 (the year of registration) at the elevated stamp duty value of ₹2.7 crore under Section 50C.
ITAT Bangalore held: the transfer occurred in AY 1993-94. Capital gains could not be taxed in AY 2007-08. The stamp duty value for Section 50C purposes is also that of the year of transfer — not the year of registration.
Agreement Date vs Registration Date: Which Governs What
Why This Matters for AY 2026-27 Filers (ITR-3 Due 31 August 2026)
If you entered into a written agreement to sell your property in FY 2025-26, handed over possession, and received substantial consideration, your capital gains arose in FY 2025-26 (AY 2026-27). Report them in your current ITR, even if the sale deed has not yet been registered.
Waiting to file in a future year "when registration happens" risks:
- Assessment for AY 2026-27 with interest under Section 234B/234C on late tax payment.
- Risk of penalty for under-reporting under Section 270A.
Common Mistakes and Pitfalls
- Using registration date as transfer date. Many sellers default to the registration date for capital gains computation. This is incorrect where the agreement and possession precede registration.
- Section 50C stamp duty value at registration. The deemed cost under Section 50C must be applied at the transfer date — the agreement date when possession was given — not the registration date. If the stamp duty value at the agreement date does not exceed 110% of actual consideration, Section 50C does not apply at all, per the proviso.
- CGAS deposit timing. To claim exemption under Section 54 or 54F where the new asset has not yet been acquired, the capital gains amount must be deposited in a Capital Gains Account Scheme (CGAS) bank account before your ITR due date. For ITR-3 filers, that means before 31 August 2026. The transfer date that starts this clock is the agreement date, not the registration date.
- Indexation base year. For resident individuals and HUFs holding property acquired before 23 July 2024, the dual-option computation (lower of 20% with cost inflation index indexation, or 12.5% without) is available. The holding period and cost of acquisition for indexation run from the original purchase date to the transfer date — agreement plus possession — not the registration date.
- HUF and partition complexity. Where an HUF property was transferred via agreement to sell and a partition of the HUF occurred between the agreement and registration dates, the beneficial ownership and year of transfer need careful analysis.
Planning Points
- Confirm the "date of transfer" for your property transaction is the date possession was handed over per the sale agreement — not the sale deed registration date.
- If capital gains arose in FY 2025-26, report them in AY 2026-27. For ITR-3 filers with business income, the deadline is 31 August 2026.
- If a CGAS deposit or new residential property purchase is needed to preserve Section 54 exemption, act before 31 August 2026.
- Where the registered value (in a later year) is significantly higher than the value at the time of agreement, review the Section 50C position for your transaction.
- If you have sold multiple properties under agreement-to-sell arrangements across different years, a review of transfer dates against past filing positions may be warranted.
I'm CA Harun Raaj, Visakhapatnam. If you've sold property under an agreement to sell and are unsure which year your capital gains belong in, reach out and we'll work through the transfer-date analysis with you.
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See Also
Frequently Asked Questions
I signed an agreement to sell my flat in March 2026, gave possession, and received 90% of the sale price — which year do I pay capital gains tax?
Under Section 2(47)(v) of the Income Tax Act, the transfer occurred in FY 2025-26 (March 2026), when possession was handed over per the written agreement. Capital gains must be reported in AY 2026-27, and if ITR-3 applies, the deadline is 31 August 2026. Confirm the exact position with your CA based on the terms of your agreement.
What if I have only paid a token advance and not given possession yet?
If possession has not been handed over and the conditions under Section 53A of the Transfer of Property Act have not been fulfilled, the transfer has not occurred for income tax purposes. Capital gains will arise when possession is handed over or the sale deed is registered — whichever event triggers Section 2(47) first.
The stamp duty value at registration is much higher than when I signed the agreement — which value applies for Section 50C?
Per the ITAT Bangalore ruling in ITA No. 2381/Bang/2025, the stamp duty value at the time of transfer — the agreement date when possession was given — applies, not the value at the time of subsequent registration. If the stamp duty value at the agreement date does not exceed 110% of the actual consideration received, Section 50C does not apply at all.
Does the same transfer-date rule apply to HUF property?
Yes. The definition of "transfer" under Section 2(47) applies equally to individuals, HUFs, companies, and all other taxpayers. The ITAT case itself, Prakash Chand Bethala HUF vs ITO, involved an HUF and the same principles were applied.
Do I need to deposit sale proceeds in a Capital Gains Account Scheme before the sale deed is registered?
If you want to claim exemption under Section 54 or 54F and have not yet acquired the new asset, you must deposit the capital gains amount in a CGAS account before your ITR due date — 31 August 2026 for ITR-3 filers. The clock for this deadline runs from the agreement-and-possession transfer date, not the registration date.
How does the transfer date affect indexation if my property was bought before 23 July 2024?
For resident individuals and HUFs holding property acquired before 23 July 2024, the dual-option computation (lower of 20% with cost inflation index indexation, or 12.5% without) is available. The holding period and cost of acquisition for indexation purposes run to the transfer date — the agreement-plus-possession date — not the later registration date.
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