Capital Gains Tax on Redevelopment

Definitions

Capital Asset as per the Income Tax Act, 1961
Section 2(14) — a) property of any kind held by an assessee, whether or not connected with his business or profession.

Transfer as per the Income Tax Act, 1961
Section 2(47) "transfer", in relation to a capital asset, includes,-
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;

Capital Gain 
Section 45(1) of the Income tax Act,1961 provides than any profit and gains arising from the transfer of a capital assets effected in previous year shall be chargeable to tax under the head of capital gain and shall be deemed to be the income of the previous year in which the transfer took place. 

SPECIAL PROVISIONS FOR COMPUTATION OF CAPITAL GAINS IN CASE OF JOINT DEVELOPMENT AGREEMENT [Section 45(5A)]Sub-section (5A) was inserted in section 45 with effect from 01.04.2018, i.e., from the assessment year 2018-19. According to section 45(5A), where the capital gain arises to an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement, the capital gains shall be chargeable to 
income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

Relief from capital gains earned on transfer of a residential property is 
available under the provision of section 54 and 54F 
Relief from long-term capital gains is available to individuals and a Hindu 
Undivided Family (HUF) on transfer of old flats, subject to fulfilment of prescribed 
conditions.

• This relief is restricted to the value of the new asset.
• To claim a benefit under section 54 of the Income-tax Act, 1961 (Act), the flat-owner should purchase the new flat either one year before or within two years from the transfer of the flat or construction of the new flat within three years of its transfer.

Liability of Income/Capital Gain Tax, if any, on:-

1. Additional area in the hands of individual members.
2. Cash compensation received upon surrender of entitled additional area, in part or in full, by an individual member.
3. The Society for receiving amenities and facilities for the common use of its members and their families.
4. Corpus Money received by the individual members from the Developer in lieu of surrender of part entitlement of FSI/Development rights.
5. Corpus Money received by the Society from the Developer in lieu of surrender of part entitlement of FSI/Development Rights, such funds being invested by the Society to earn interest income to meet/subsidize the maintenance costs of its Redeveloped premises and property.

Rent for Temporary Alternative Accommodation including Deposits, if any:

Rental allowance may be received by individual members in the event of need for Relocation during Redevelopment. Such amounts may be utilized in part or in full towards rent paid for alternative premises or may remain entirely unspent if the member already has his/her own alternative accommodation.

Such allowance may be received for about three years, either together in one tranche in advance or in instalments on a staggered basis.

Liability of Income Tax, if any, on such Rental Allowance, including Deposits, if any, received by the individual members.

Liquidation & Disbursement of Existing Sinking Fund.

The Sinking Fund is to be used on the property itself either for the purpose of development or Heavy Repair. However, if the Registrar gives permission then the Sinking Fund could be distributed amongst the Individual Members which again has a number of restrictions. This distribution of Sinking Fund after the permission of the Registrar would be taxable in the hands of the Individual Members to the extent of the interest on such a fund. The distribution of the principal amount would not be taxable in the hands of the Society or the Individual Members.

Goods/ Household Amenities received by Members from Developer. 

Property other than immovable property which are not attached to the walls of the flat and exceeds 50,000/- in value in totality are not treated as a part of the Flat and are thus taxable in the hands of the Individual Members in the year of receipt of such amenities u/s. 56(2)(vii) of the Income Tax Act, 1961.

Reimbursement of Expenses from Developer. 

Anything amount which is reimbursed by the Developer is not taxable either in 
the hands of the Society or the Individual Members, provided that the entire amount of reimbursement is been spent on the expenses it is reimbursed for. Thus, if excess amount is reimbursed by the Developer than the amount which is actually spent for the purpose than the excess amount would be taxable on the receipt of the same.