Tax consequences on redevelopment of existing house

Tax queries 3750 views 4 replies

Nikhil Agrawal

Article trainee

52 Points Joined July 2009

Facts

Individual assessee’s one residential property is gone for redevelopment. In return assessee is getting some amount of rent. He has also received a corpus amount as lumpsum compensation. After reconstruction of the new building the assessee will get a flat in that new building of bigger area than the original one.

Our understanding

1. Corpus amount received is like a capital receipt and every capital receipt is tax free.

2. Assessee gets one residential house in the new building and hence giving up his old property would be a “transfer” as per section 2(47) of the Income Tax Act, 1961 and hence taxable for capital gains purposes.

Query

1. Is the received rent amount taxable since assessee is staying in another self-owned house?

2. Is corpus amount a taxable capital receipt?

3. Assessee gets one residential house in the new building so is it taxable due to transaction being “transfer” as per section 2(47) of the Income Tax Act, 1961. If yes then when is it taxable?

4. Is there any capital gains tax exposure? If yes then what is it like and can section 54 exemption be taken?

Thanks and regards,

Nikhil

Replies (4)

Anumanchipalli Sathikonda

Tax Consultant

1559 Points Joined June 2009

Mr.Nikhil Agrawal

Your querry is not complete to get the correct answer.

(1) What is the extent of the land (in sq. yards or metres) of the land on which the old residential house was constructed?

(2) Is the entire old house is demolished before constructing the new house?

(3) If entire old house is demolished who has taken the wood, brick, window frames, door frames, iron etc., of the demolished house?

(4) What is the value of the said wood, brick, window frames etc., ?

(5) How much land has been proportionately given to the builder after demolishing the old building?

(6) Total how many flats have been constructed after demolition of the old building?

(7) What is the cost of construction per sq. foot for the new flats as per the buildders' account?

(8) If old building is not demolished only a floor (Flat) is constructed on the existing building- what is the total constructed area in Sq. feet of the new flat (floor?)

(9) What is the cost of construction of the new floor (flat) as per builders account?

(10) Extent of proportionate land transfered to the builder?

(11) What for the rent is being paid?

(12) When the land on which the old building was constructed acquired and at what cost?

If you provide all the above details you will get the correct answer.

Best Wishes

Sathikonda

Chirag

Student

26 Points Joined August 2009

I am also seeking views on this Topic Kindly Reply with Answer .....

Guest

1) What is the extent of the land (in sq. yards or metres) of the land on which the old residential house was constructed?

3000 sq mtrs

(2) Is the entire old house is demolished before constructing the new house?

Yes, the entrie building nd society is demolished

(3) If entire old house is demolished who has taken the wood, brick, window frames, door frames, iron etc., of the demolished house?

The builder has taken. In lieu of it, he has paid a lumpsum amount as corpus fund to members.

(4) What is the value of the said wood, brick, window frames etc., ?

Not specified

(5) How much land has been proportionately given to the builder after demolishing the old building?

He will take 1/3rd of the land for his construction

(6) Total how many flats have been constructed after demolition of the old building?

70 flats

(7) What is the cost of construction per sq. foot for the new flats as per the buildders' account?

It is not mentioned in the agreem,ent

(8) If old building is not demolished only a floor (Flat) is constructed on the existing building- what is the total constructed area in Sq. feet of the new flat (floor?) NA

(9) What is the cost of construction of the new floor (flat) as per builders account? NA

(10) Extent of proportionate land transfered to the builder? NA

(11) What for the rent is being paid? Rs 10000 pm

(12) When the land on which the old building was constructed acquired and at what cost? Acquired in 1971, fair market value is available

Apart from the above information, the member has sold the flat after getting the possession after 2 years. What is the tax implication in such case

Tasneem Baxamusa

Article

39 Points Joined July 2009

What are the income tax consequences:-

The property redevelopment scheme wherein the builder gives the rent for the period under which the property is under construction to the tenants/ members of the society.

The builder also pays the corpus amount.

The builder also providese various failities for the transfer of the household items to the other rented place.

The builder will provide the flats in the newly constructed building to the tenants/ members.