Question And Answer | |
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Subject: | Capital gain on Sale of flat alloted under redevelopment (Income Tax) |
Category: | Income-Tax |
Querist: | Rohit J Gupta |
Answered by: | Law Intern |
Tags: | redevelopment |
Date: | June 18, 2025 |
Property Background
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Original MHADA property was exchanged for alternate accommodation in Ghatkopar (East), Mumbai. (before 2000)
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Property was later transferred to the current owner through inheritance.(in 2008)
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The property underwent redevelopment through a formal development agreement. (in 2014, further with Supplementary deed 2020)
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The owner received a new flat in the redeveloped project as permanent alternate accommodation.(in Mar 2022)
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The redeveloped flat was subsequently sold in June 2024.
Now we are now having two CG scenario :-
Scenario A :
Capital Gain on Sale of redeveloped Flat
Event: Sale of property (redeveloped flat) in June 2024 (AY 2025-26).
Full Value of Consideration: Actual sale price received from buyer.
Cost of Acquisition: Fair Market Value (FMV) as on 01/04/2001 (indexed) → as per Sec 55(2)(b) and Sec 48. (Query)
Indexation: ✅ Available → Using CII of 363 for FY 2024-25.
Nature of Gain: Long-Term Capital Gain (LTCG) → Tax @ 20% (Sec 112).
Exemptions: Can claim Sec 54 (new residential property) or Sec 54EC (investment in eligible bonds up to ₹50L), if eligible investments made.
Scenario B :
Capital Gain on Transfer to Developer (Sec 45(5A))
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Event: Transfer of development rights to builder.
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Tax Trigger: Completion Certificate date (likely AY 2023-24).
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Full Value of Consideration: Stamp Duty Value (SDV) of the new flat as on that date alongwith Monetary consideration.
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Cost of Acquisition: FMV as on 01/04/2001 (indexed).
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Nature of Gain: Long-Term Capital Gain (LTCG) → Tax @ 20%.
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Exemptions: Can claim under Sec 54 or Sec 54EC, if reinvested or invested in eligible bonds.
Capital Gain on Sale of New Flat (Sec 49(7))
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Event: Sale of redeveloped flat in June 2024 (AY 2025-26).
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Full Value of Consideration: Actual sale price received.
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Cost of Acquisition: Deemed = Capital Gain already taxed under Sec 45(5A).
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Indexation: ❌ NOT available (as per Sec 49(7)).
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Nature of Gain: Long-Term Capital Gain (LTCG) → Tax @ 20%.
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Exemptions: Can claim Sec 54 / Sec 54EC, if eligible investments made.
My Query :-
- Can we follow Scenario A?
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Can the Cost of Acquisition for computing capital gains on the sale of a newly redeveloped flat be considered as the Fair Market Value (FMV) as on the date of allotment of the new flat (31/03/2022), since:
1️⃣ The original cost of acquisition is not available,
2️⃣ The property was inherited, and
3️⃣ The newly allotted flat is completely different in character, structure, and specifications from the old property handed over for redevelopment, making the old property irrelevant for valuation purposes?We do not wish to consider FMV as on 01/04/2001, as the sold property is the new flat obtained in exchange.
Is there any provision/Case laws under the Income-tax Act, 1961, that permits using the FMV as on the date of allotment of the new redeveloped flat as the Cost of Acquisition for capital gain computation in this case?
- Now the Sale proceed has been transfer to 5 grandsons and they invested in their individual name, still we can claim section 54 exemption?
- any separate view of your in above case? Guide with appropriate Computation mechanism
Scenario A appears to be risky as it ignores the issue whether the transfer of development rights under the JDA is a taxable transfer. It appears that section 45(5A) was applicable at that stage and the difference between the stamp duty value and the cost of the old property would be assessed in the year the completion certificate was issued.
Scenario B appears to be appropriate with two taxable events i.e. the transfer of the development rights and the sale of the new flat.
As regards the cost of acquisition of the new flat, under section 49(7) the stamp duty value on the Completion Certificate date will have to be considered.
If the grandsons have purchased flats in their own name and not as nominees for the assessee,section 54 exemption will not be available.