Ahmedabad: At a time when an increasing number of residential properties are going for redevelopment, both homeowners and developers face ambiguity over whether such projects attract long-term capital gain (LTCG) tax or not.
Experts said that societies should ensure there is a clause in the agreement with the builder that the project is completed within three years.A period longer than three years could attract long-term capital gain tax demand by the income tax department.
Other experts on the other hand feel that taxpayers cannot be held liable in case of delay on part of the developer.
Sandeep Trivedi, a member of the Housing Apartment Redevelopment Federation said, “Many societies are going for redevelopment, but members are unclear about the LTCG impact. Some experts say that the project should be completed in three years for LTCG to be not applicable, while others say redevelopment deals do not attract LTCG at all. Also, we demand that the state govt give stamp duty exemption for redevelopment.”
Tax expert Mukesh Patel said, “As per Section 54 of the Income Tax Act, there is an exemption in LTCG if a house property is bought within three years from the sale of the old house and same can be applicable for redevelopment as well.
In such situation, cost of the old house based on indexation and price of the new house on the date of agreement are considered and LTCG tax demand can be raised by income tax department. However, house owner can claim that he/she has booked a new house property with development agreement with builder and therefore, he/she cannot be liable for delay in the completion. However, for safety, society members should insist a clause of project completion in 36 months in the agreement.”
CA Jainik Vakil, chairman of GCCI direct tax committee said, “If redevelopment project is not completed in 36 months, issue of LTCG arises, but members should not worry about it. There is no consideration in such deals and also, there are various court judgments defending home owners.”
Jitendra Shah, a builder active in redevelopment deals said, “Existing house owners get rentals from builders, so it is calculated in the house owner’s income. If gift money is provided, it will be taxable. However, if it is compensation, then it is not an income for the home owner.”
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Experts said that societies should ensure there is a clause in the agreement with the builder that the project is completed within three years.A period longer than three years could attract long-term capital gain tax demand by the income tax department.
Other experts on the other hand feel that taxpayers cannot be held liable in case of delay on part of the developer.
Sandeep Trivedi, a member of the Housing Apartment Redevelopment Federation said, “Many societies are going for redevelopment, but members are unclear about the LTCG impact. Some experts say that the project should be completed in three years for LTCG to be not applicable, while others say redevelopment deals do not attract LTCG at all. Also, we demand that the state govt give stamp duty exemption for redevelopment.”
Tax expert Mukesh Patel said, “As per Section 54 of the Income Tax Act, there is an exemption in LTCG if a house property is bought within three years from the sale of the old house and same can be applicable for redevelopment as well.
In such situation, cost of the old house based on indexation and price of the new house on the date of agreement are considered and LTCG tax demand can be raised by income tax department. However, house owner can claim that he/she has booked a new house property with development agreement with builder and therefore, he/she cannot be liable for delay in the completion. However, for safety, society members should insist a clause of project completion in 36 months in the agreement.”
CA Jainik Vakil, chairman of GCCI direct tax committee said, “If redevelopment project is not completed in 36 months, issue of LTCG arises, but members should not worry about it. There is no consideration in such deals and also, there are various court judgments defending home owners.”
Jitendra Shah, a builder active in redevelopment deals said, “Existing house owners get rentals from builders, so it is calculated in the house owner’s income. If gift money is provided, it will be taxable. However, if it is compensation, then it is not an income for the home owner.”
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In posh Mumbai, redevelopment offers locals cant refuse
Builders in Mumbai are enticing middle and upper-middle-class residents of old buildings in prime areas with luxury facilities and compensation deals. Redevelopment deals include tearing down old buildings and replacing them with luxury towers, offering larger apartments and corpus funds to society members. A-list builders like Rustomjee and Sunteck Realty are involved in these projects.
Builders in Mumbai are enticing middle and upper-middle-class residents of old buildings in prime areas with luxury facilities and compensation deals. Redevelopment deals include tearing down old buildings and replacing them with luxury towers, offering larger apartments and corpus funds to society members. A-list builders like Rustomjee and Sunteck Realty are involved in these projects.