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Interest received from builder by surrendering flat

for ebay (63 Points)

08 March 2021  
My Father, retired and income below taxable limit had invested in an apartment project upto 2014 and paid Rs. 22.10L... The builder went almost bankrupt and couldn't finish the project on time. My father called him up in January 2019 and decided to withdraw from the project and asked the builder to return the money with some interest... On April 2019 he called up and told me that he will return the money in few months and deposited Rs. 1L in bank account and went silent. Last December 2020 he assured my father he will return a total of Rs. 30L{including that 1L} and give a profit of Rs. 7.90L... And will pay in post dated cheque; instalments of Rs 5L from December 2020 upto May 2021...as of now 3 cheques have been cleared...

My question... will my father have to pay tax on the interest received by the builder... Since it is bufurcated into 3 FYs {1 lakh in april 2019} and rest in 20-21 and 21-22

if tax has to be paid, is there any way to save that hard earned money of my father (flat was not registered in my father's name since it wasn't completed.)

Can it somehow be treated as CAPITAL GAIN/LOSS (because in that case it is capital loss of Rs 10L- calculated using an app)

Thanx in adv and God bless

 4 Replies

Neha sharma (-) (1246 Points)
Replied 08 March 2021

The tax treatment will depend on whether you are surrendering the flat or selling the flat?

If you are surrendering the flat and withdrawing the money - then it should ideally be treated as interest.

However, if you are selling the flat - then it should be treated as capital gains.

Waiting for opinions of other experts.

for ebay (63 Points)
Replied 08 March 2021

The cancel agreement states that the builder is giving an interest of rs 7.90L as the buyer is cancelling the flat along with the capital of rs 22.10L paid by the buyer... So in a way we are surrendering due to negligence and delay from the builder

Neha sharma (-) (1246 Points)
Replied 10 March 2021

As the word "Interest" has been very specifically used by the builder, therefore this cannot be treated as capital gains. It would be taxable as Interest income only and benefit of indexation of reduced tax rates cannot be applied.

for ebay (63 Points)
Replied 10 March 2021

Thank you for the help.... Much appreciated.. God Bless...

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