INCOME TAX ON REDEVELOPEMENT OF FLAT

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A flat owner sought tax treatment of rent and lump sum compensation received during redevelopment. The reply stated that compensation is tax-free to the extent actually used for alternate accommodation, with any excess taxable. Capital gains exemption under Section 54 is available on the redeveloped flat.

NIRMAL DAVE

NIRMAL DAVE (Querist)
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03 July 2026 Dear All,

I have a flat which is currently under redevelopement scheme. The flat is neither self occupied nor rented out.

I received monthly Rent of Rs. 10,000/- and lump sum amount of Rs. 2,00,000/- as a compensation from developer.

Please guide me whether rent and lump sum compensation received is taxable?

Please also guide me on applicability of capital gain & exemption under section 54 in such redevelopement case.

Thanks & Regards
Nirmal

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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03 July 2026 Rent and any other compensation are tax-free to the extent it is actually used. e.g. if rent paid is less then the received amount, the excess is taxable.
The redeveloped flat is exempted u/s. 54 based on old flat being handed over.

NIRMAL DAVE

NIRMAL DAVE (Querist)
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03 July 2026 Thank You Sir for your valuable reply.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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04 July 2026 You are welcome.

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