Rent recieved from builder for redevelopment is it taxable

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Dinesh Kumar R. Tiwari (Querist)
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24 August 2013 Respected Sr. and friends

I have question regarding Rent received from builder for the Redevelopment of will it be taxable and if it is taxable so under which head it would be charge.

And the rent paid against this rent received will it be allowable?

Please reply your answer and clarify my doubts.

Thanking to all

CA M Indani

CA M Indani (Expert)
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24 August 2013 what is mean by rent received for the redevelopment??

is it rent received for the property transfered to builder for redevelopment??

Dinesh Kumar R. Tiwari

Dinesh Kumar R. Tiwari (Querist)
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26 August 2013 Indani Sir,
Thank you so much sir for your kind reply.
In fact, our premises went for redevelopment under Slum Rehabilitation Authority (SRA) project. As you know that builder who is redeveloping the Premises under SRA he get the free FSI from the MHADA. So, for redevelopment of premises eighter they give US Compensation(RENT) Till the project Completion or he provides the accomodation. Hence, we received a Cheque on yearly basis from them.

So, please sir let me know the amount received from builder under this is it Taxable. If Yes so under which head it is taken i.e. under House Property or Under Other Sources.

And Rent paid by Us will it be allowed as a expenses against the amount received.

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Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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21 July 2025 Thanks for the detailed context — this is a very common issue in urban redevelopment cases, especially under SRA projects in Mumbai and other metro cities.

Let’s break it down carefully:

✅ Situation Summary
Your original premises went into redevelopment under an SRA scheme.

You are the original occupant / tenant / owner.

While the property is being redeveloped, the builder pays you compensation, either:

Alternate accommodation, or

Monetary rent (e.g. ₹X per month/year)

You are using this money to rent a temporary house elsewhere.

🔍 Main Questions
Is the compensation (rent) received from builder taxable?

If yes, under what head?

Can the rent paid for alternate housing be claimed as a deduction?

✅ 1. Is the Amount Received from Builder Taxable?
✔ Yes, the compensation/rent received from the builder is taxable.

Although it's commonly referred to as "rent", it's not rent from house property, because:

The property is not being let out by you to the builder.

You have temporarily vacated for redevelopment.

This is essentially compensation for loss of use of your property or displacement.

✅ 2. Under What Head is It Taxable?
The correct head of income is:

💼 "Income from Other Sources" – Section 56 of the Income Tax Act

It's not Income from House Property (because the property is not being let out)

It's not Capital Gains (as no transfer has occurred — only redevelopment is ongoing)

It is compensation — similar to license fees, shifting allowance, or temporary occupation charges

📌 Therefore, it is taxable as “Income from Other Sources” in the year of receipt.

✅ 3. Can Rent Paid by You for Temporary Accommodation Be Deducted?
❌ No, unfortunately.

Under the Income Tax Act, you cannot deduct personal rent paid against income from other sources.

There is no specific provision allowing:

Set-off of rent paid for temporary accommodation against compensation received, unless you are in a business of sub-letting, which doesn’t apply here.

However:

If you're a salaried individual and also claiming HRA for the rent paid during redevelopment, that claim can continue separately under Section 10(13A).

But it won’t reduce the taxable compensation received from the builder.

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