s.23(5) — Unsold stock and the two year window
The annual value of a completed but unsold flat held as stock in trade is nil for up to two years from the end of the financial year of the completion certificate, and taxable afterwards.
The counterpart in the Income-tax Act, 2025 is section 21(5). As enacted it read that the annual value shall be nil for two years; Act No. 4 of 2026 substituted nil up to two years with effect from 1 April 2026, restoring the 1961 formulation and removing the argument that the nil value was a fixed two year block rather than a maximum period.
Income-tax Act, 1961
s.23(5)
Income-tax Act, 2025
s.21(5)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 23(5) of the Income-tax Act, 1961 provides that where property consisting of any building or land appurtenant thereto is held as stock in trade and the property or any part of it is not let during the whole or any part of the previous year, the annual value of that property or part, for the period up to two years from the end of the financial year in which the certificate of completion of construction is obtained from the competent authority, shall be taken to be nil. Three features decide its operation. The clock runs from the end of the financial year of the completion certificate and not from the date of the certificate, so a developer completing in April has almost three years and one completing in March has almost exactly two. The relief is a nil annual value for that period and nothing afterwards: from the third year the unsold units carry a notional annual value computed under section 23(1)(a), the sum for which the property might reasonably be expected to let, reduced by the thirty per cent standard deduction in section 24(a) and by any interest under section 24(b). And the certificate that starts the clock is the same document that section 80-IBA(2)(b) requires, so a developer who cannot obtain it has a problem under both provisions. The counterpart in the Income-tax Act, 2025 is section 21(5).
What the provision does
Suspends the notional annual value of completed unsold stock for up to two years from the end of the financial year in which the completion certificate is obtained, and leaves it taxable as income from house property afterwards, even though the units are stock in trade of a business.
Threshold questions
- Is the property held as stock in trade, which is what brings the sub-section into play at all
- Was the property or part of it not let during the whole or any part of the previous year, because letting takes it out of the sub-section
- When was the certificate of completion of construction obtained from the competent authority, and what is the end of that financial year
- Has the two year period from that date expired, after which the annual value is computed under section 23(1)(a)
- Is the annual value for the post-window years supported by comparable lettings, because the sum for which the property might reasonably be expected to let is a question of evidence
In practice
The recurring disputes.
Whether the section 80-IBA deduction covers the notional rent
It does not. The notional annual value is income under the head income from house property and section 80-IBA(1) deducts from the profits and gains derived from the business of developing and building housing projects. So a developer with substantial unsold stock three years after completion has taxable house property income even though its entire business profit is deducted. For a company that income is also outside book profit, because a notional annual value is a tax fiction and not an accounting entry, so it increases regular tax without increasing minimum tax. In the ordinary case the minimum tax remains the operative charge and the notional rent produces no extra cash tax, but in the tail years of a project, when the business profit has been recognised and the book profit has fallen away, the notional rent can become the charge that bites.
Whether unsold stock is assessable as house property at all
The anterior question, which section 23(5) does not answer, is whether a flat held as stock in trade can be assessed on a notional annual value at all. The assessee's argument has been that a trader's stock yields business income or nothing, and that an annual letting value cannot be imputed to goods held for sale. The existence of section 23(5) cuts both ways: the Revenue says it assumes the charge and merely postpones it for two years, and the assessee says it is a relieving provision that would have been unnecessary had the charge not been doubtful. The words favour the Revenue, because a provision that takes the annual value as nil for a period presupposes that there is an annual value to take.
The date the clock starts, and a developer who cannot get a certificate
The period runs from the end of the financial year in which the certificate of completion is obtained, which gives an incidental advantage to completion early in a financial year. Where the local authority issues occupation certificates building by building rather than a certificate for the project, the question is which document starts the clock, and the sub-section speaks of the certificate of completion of construction of the property, which points at the unit or the building rather than at the project. That reading helps the developer here and hurts it under section 80-IBA(2)(b), where the proviso requires a certificate for the project as a whole. No decision reconciling the two expressions could be located.