Income Tax implications on Members of Society in Redevelopment

rupeesBy Accommodation Times News Services

1.As discussed, the capital gains on transfer of development rights to the developer arises :
(a)to the society in case where the society is of the nature of Plot purchased type society; and
(b)to the members in the case of Flat Owners Society.

2.The relevant provisions under the Income Tax Act for planning of the tax liability on transfer of development rights held for a period of more than 36 months are discussed hereunder :

Section 54
The aforesaid section inter alia provides that in case the assessee, who is individual or HUF, derives long-term capital gain from transfer of building or land appurtenant thereto and purchases or constructs another residential house within a specified period, the capital gain to the extent of cost of purchase or construction of that another house is not charged to tax. The aforesaid exemption is subject to the conditions that the newly acquired/constructed property is held for minimum three years.
The specified period within which the residential house is required to be purchased is one year before or two years after the date of transfer and if constructed, three years from the date of transfer.
The judicial authorities have laid down the principle that under the provisions of section 54, if an assessee sells more than one residential house and reinvests the capital gains arising therefrom in a new residential house, then also he shall be able to claim the benefit of exemption under section 54, irrespective of the ownership of other house properties.

Section 54F
The aforesaid section inter alia provides that if the long term capital gain arises from transfer of any asset, other than the residential house and the assessee being an individual or HUF acquires / constructs within the specified period a residential house, the long-term gain is not charged to tax in the year of transfer subject to following limits :
(a)If the cost of purchase/construction of the residential house is equal to or more than the net consideration received on transfer, the entire amount of capital gain is not charged to tax.
(b)However, if the cost of purchase/construction of the residential house is less than the net consideration received, only the proportionate amount of capital gain is not charged to tax.





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