Capital Gains from Cancelled Residential Project

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.

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. 

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. 

Only interest portion is long term capital gains rest. 

No capital gain no transfer as per definition of income tax act.