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Interest from Delay in Possession of Flat

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Bharat Diwan

8 Points Posted on 29 March 2023

Dear All

I have one query.

We have received interest on account of delay in possession/ handover of our Flat from the Builder.

We would like to know that whether this amount is chargeable to Tax and under which head. Some professional has advised us that this amount is tax free. If it is tax free then to what extent ?

Kindly advice.

Thanks

Bharat

CMA, CS

Replies (3)

Quick Summary

This discussion explores whether interest received for a delayed flat handover from a builder is subject to tax. The advice given suggests that the taxability hinges on how the compensation is worded in the agreement – as interest (taxable) or as compensation for hardship (potentially non-taxable). It also highlights that if the builder deducts TDS, arguing non-taxability becomes challenging.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

212414 Points Posted on 29 March 2023

This is a highly debatable issue. According to the Income tax act, revenue receipts are taxable and capital receipts are not taxable. What is most important in such a case is the agreement between the buyer and the builder. One will need to see how the clause relating to the payment of interest is worded. If the compensation is in the nature of interest, then it is clearly taxable. If it is worded in a manner that it is a compensation for hardship caused due to the delay, then there is a possibility of arguing that it is not taxable. However, if the builder deducts TDS from it then it will be very difficult for you to convince the tax officer that it is not taxable.