Capital Gains from Cancelled Residential Project

Tax queries 495 views 4 replies

AJM_India

Director

75 Points Joined July 2011

Hi Friends

My wife had invested in 2 adjoining plots of land in an upcoming residential project in Uttar Pradesh in 2015.

Only Part Payment was made since project was getting delayed. The builder issued the allotment letter to her for the 2 plots. The agreement was not registered.

However, after 10 years, the project has been cancelled by the developer and they have also received RERA approval for cancellation of the project.

The builder has agreed to refund the principal amount along with accrued interest to my wife.

I wish to know the tax treatment of this refund of Principal + Accrued Interest.

Can this is taken as LONG TERM CAPITAL GAINS TAX from sale of Residential Property.

If yes, can my wife Invest in Capital Gains Bonds u/s 54EC with 5 year lock-in to offset this LTCG income.

Thanks

Replies (4)

Aashok F C Advisory

Finance & Compliance Consultant | FP

258 Points Joined January 2026

The principal refund is treated as Long-Term Capital Gains (LTCG) because the allotment letter created a "right to property" held for over 24 months. You can save tax on this gain by investing in 54EC bonds within 6 months. The accrued interest, however, is taxed as "Income from Other Sources" at your wife’s slab rate.

AJM_India

Director

75 Points Joined July 2011

Thanks for the quick response.

Need further clarity on your response -

On the principal income there is no profit - it is just "Capital Reciept" or return of principal capital so question of Capital Gains doesnt arise.

Seeking tax friendly solution on the treatment of interest income which shall be clubbed at 30% tax bracket.

Sivasubramaniam Sankaranarayan

2 Points Joined February 2026

In delayed housing apartment projects, the date of registration and date of handing over are distant periods. Which shall we take for date of acquisation ? Registration is for Undivided share only. shall we treat house construction as improvements. In that case, shall we take date of handing over as date of acquisation. please clarify.