Taxation & Reporting in ITR - Redevelopment of building

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Suraj (Querist)
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17 February 2025 Dear Sir / Madam,

I wish to know about taxation, in layman's language, in the case of the redevelopment of a building for its members. I have read a few articles, but I did not get clarity on taxation, its reporting in ITR, etc. My queries are as follows:

This building is a Pagdi building situated in Mumbai, where the tenants have come together for the redevelopment of the building. They will receive 450 sqft in exchange for their earlier 240 sqft. The building was constructed in 1945.

There are two types of tenants: A) Tenants who are not going for additional area other than what they are eligible for, i.e., 450 sqft. B) Tenants who are going for additional area beyond what they are eligible for, i.e., may go up to 600 sqft.

The development agreement is entered into on 14-02-2025. Also, note that the tenant is not selling the flat.

My questions are as follows:

1) Is the tenant required to show this transaction in their ITR for AY 2025-26 as a sale of property? If yes, what could be the cost price and sale value? Will there be any capital gain in both cases mentioned above?
2) Is the tenant required to obtain a valuation report as of 01-04-2001 and 14-02-2025?
3) If not shown in AY 2025-26, and the construction is completed after two years, say on 14-02-2027, is the tenant required to show this transaction in the ITR for AY 2027-28? What would the cost price and sale value be in this case?
4) Is the rent received from the developer for relocation to another place taxable?
5) Is any hardship allowance received taxable in the hands of the tenant?
6) Is GST payable by the tenant at any point during the entire redevelopment process?

I would be grateful if someone could clarify the above points and also provide any additional points to consider from a taxation and ITR reporting perspective.

Kindly revert.
Regards,
Suraj

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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12 August 2025 1) Is the tenant required to show this transaction in ITR for AY 2025-26 as a sale of property?
Since tenant is not selling but getting new flat in exchange for old flat, this is considered a transfer of capital asset under Section 2(47) of Income Tax Act.

Yes, tenant needs to report this transaction in ITR for AY 2025-26 (the year in which agreement is executed or possession handed over, depending on facts).

Cost price: Cost of original flat (purchase price or stamp duty value when acquired)

Sale value: Consider the fair market value (FMV) or the consideration received (value of new flat allotted to tenant).

Capital Gain:

For tenants getting only entitled area (450 sqft), the transaction is a swap, so capital gain arises based on difference between sale value and cost.

For tenants opting for additional area (up to 600 sqft), capital gain is computed on the value of the flat allotted minus cost price, plus any extra amount paid for additional area.

Capital gains are taxable as per normal provisions (long-term if held for >24 months). Indexation benefit applies.

2) Is the tenant required to obtain a valuation report as of 01-04-2001 and 14-02-2025?
Yes, a valuation report is needed for calculating capital gains.

The value of property as on 01-04-2001 (for cost inflation index base) is important if property was acquired before that date.

Valuation on the date of transfer (14-02-2025) helps determine sale consideration.

Certified valuation by a registered valuer is recommended for accuracy and compliance.

3) If not shown in AY 2025-26, and construction completes after 2 years (say on 14-02-2027), is tenant required to show this transaction in AY 2027-28? What would be cost and sale value?
If tenant has not reported in AY 2025-26, the correct year to report is the year in which possession or allotment of new flat occurs, i.e., AY 2027-28.

Cost price: Cost of original flat

Sale value: Fair market value or consideration received in 2027.

The tenant needs to report capital gains in the year of actual transfer (possession).

Note: Delay in reporting can attract interest and penalty.

4) Is the rent received from the developer for relocation taxable?
Yes, any rent or compensation received for temporary relocation is taxable as ‘Income from Other Sources’ in tenant’s hands.

It must be declared in ITR and taxed at applicable slab rates.

5) Is any hardship allowance received taxable in the hands of the tenant?
Yes, hardship allowance or any compensation received by tenant is taxable as income from other sources.

6) Is GST payable by the tenant during redevelopment?
No, GST is not payable by the tenant on the redevelopment transaction.

GST is payable by the developer on construction services provided.

Tenant is not a supplier here, so no GST liability on tenant.

Additional points:
Tenants should keep all documents related to original purchase, redevelopment agreement, valuation reports, and correspondence with developer.

Tenants should consider capital gains exemptions if applicable under sections like 54, 54EC, or 54F if reinvesting in specified assets.

It’s advisable to consult a tax professional for accurate valuation and filing, especially in complex redevelopment cases.

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