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Taxability of TDR sale proceeds

poornima (Chartered Accountant) (38 Points)

22 July 2024

Hi everyone. Assessee got TDRs on compulsory acqusition of site during 2019. He sold these TDRs to developers for new constructions and other than for redevelopment during 2022-23 and 2023-24 Financial years and realised Rs.1 Cr. whether Capital gains provisions applicable or not. If applicable what will be the cost of acqusition for those TDRs. Please reply with applicable case laws.
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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5118 Points)
Replied 23 July 2024

To calculate the cost of acquisition for Trasnferable Develepment Rights (TDRs)follow these steps:

Determine the original cost: Find the original cost of the property from which the TDRs were generated.
Calculate the proportionate cost: Calculate the proportionate cost of the TDRs based on the ratio of the TDRs to the total floor space index (FSI) of the original property.
Adjust for inflation: Adjust the proportionate cost for inflation using the cost cost inflation index(CII) notified by the income tax department.
Consider other expenses: Add any other expenses incurred in relation to the TDRs, such as stamp duty, registration fees, and brokerage charges.
Formula:
Cost of acquisition of TDRs = (original cost x proportionate Ratio)x CII (current year)/CII (year of Original purchase) +other expenses.
Example: Original cost = Rs.10,00,000
Proportionate Ration = 20% (TDRs generated)
CII (current year)=300
CII (year of original purchase) =150
other expenses = Rs.50,000
Cost of Acquisition of TDRs= (Rs.10,00,000x20%) x 300/150+Rs.50,000= Rs.4,00,000

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poornima (Chartered Accountant) (38 Points)
Replied 23 July 2024

Thank you sir.
May i know under which section these provisions will applicable and also from which year the sale of TDRs attracts Capital Gains. Because there are some ITAT decisions stating that the sale of TDRs doesn't attract capital gains as they are not treated as Capital Assets due to lack of information relating to Cost of Acquisition.
Please clarify.

Gary York (no) (22 Points)
Replied 21 November 2024

Originally posted by : poornima
	Thank you sir.May i know under which section these provisions will applicable and also from which year the sale of TDRs attracts Capital Gains. Because there are some ITAT decisions stating that the sale of TDRs doesn't attract capital gains as they are not treated as Capital Assets due to lack of information relating to Cost of Acquisition. Please clarify. basket random

Capital gains tax rules will apply under Sections 2(14), 45, and 48 of the Income Tax Act. The sale of TDRs will be subject to capital gains tax in the year of sale. However, if the cost of acquisition is not ascertained, there may be a dispute as to whether TDRs are considered capital assets. This is what I understand.