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Capital gains tax on sale of redeveloped property

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Ganesh Mahadevan

22 Points Posted on 11 December 2023

My Father purchased a flat or 768 sq.ft carpet area in a Mumbai suburb in 1987 for Rs. 8 lakhs. The society went into redevelopment in 2015 and flat was handed over to builder and PAA was signed in 2016. My Father passed away in 2017 and i being the only legal heir, inherited the property in 2017. Redevelopment project is nearing completion and possession is expected in Feb 2024. Builder has given 60% extra area and hence my new flat will be 1230 sq.ft.

I will be selling of this flat. How will Capital Gains Tax be calculated and how can I save this tax?

Replies (2)

Quick Summary

This discussion clarifies Capital Gains Tax implications for a redeveloped property inherited after a father's passing. The new flat is considered a continuation of the original 1987 purchase, meaning the holding period starts then, qualifying it for long-term capital gains. The cost basis will be either the original purchase price or the Fair Market Value as of April 1, 2001. Any additional area purchased separately will have its own acquisition date and cost. Tax can be calculated with or without indexation, and Section 54 allows for reinvestment to save tax.

CA Aakarsh Jain

4330 Points Posted on 12 December 2023

Hi, please check the details in your inbox

Aashok Kumar Sharma

Finance/Compliance Consultant

74655 Points Posted on 07 November 2026

For a redeveloped flat:

• The new flat received in a society redevelopment replaces the old one. Many tribunals and courts treat it as an improvement or continuation of the original flat, not a new acquisition (no transfer by the member; Sec 45(5A) applies to landowners in JDAs, not to society members).

• So for a flat bought in 1987 for Rs 8 lakh: cost = Rs 8 lakh, or FMV as on 1 April 2001 (capped at the stamp duty value then), whichever you choose. The holding period runs from 1987, so long-term.

• Additional area purchased by paying the builder: cost of that area, with its own acquisition date.

• Hardship compensation, rent and corpus: as discussed in earlier batches, rent is generally not taxable (displacement compensation), and corpus is a capital receipt reducing the cost.

• Sale: 12.5% without indexation, or 20% with indexation (property acquired before 23 July 2024). Sec 54 is available for reinvestment.