Is compensation/interest recovered by RERA court from builder taxable?

Booked flat in 2013, paid installments until 2018 from NRE account. Construction stopped, UP RERA court ordered builder to pay including compensation in the form of interest. Builder failed to pay, UP RERA recovered the money from builder and deposited into my account, principal around 57L, interest around 37L. Is the interest taxable?
As per this article , "When a buyer books and flat and then eventually cancels it, but benefits by receiving a higher amount than he initially paid from the builder, the extra money will be treated as capital gains in the tax parlance. This was laid by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT). The tribunal also made it clear that the excess income thus earned will not be treated as long term capitals gains and be treated as a tax-free income, unless the holding period conditions and other conditions are satisfied."

Does this mean it's not taxable?

Hi Kul K,

This is a nuanced question. Let me clarify the tax treatment of compensation/interest recovered by RERA from the builder and paid to you:

Key Points:

Principal Amount (₹57L):
- This is your own money originally paid for the flat. Returning the principal is not taxable, as it’s a return of capital.
Interest/Compensation Amount (₹37L):
- Interest or compensation received from the builder as ordered by RERA is generally treated as “Income from Other Sources” under the Income Tax Act.
- It is taxable in the year of receipt at your applicable slab rate.
- The ITAT ruling you mentioned mainly applies to cases where the buyer cancels the booking and recovers more than the amount paid. That ruling is specific and does not necessarily apply to interest/compensation recovered through RERA.
Capital Gains Aspect:
- Capital gains arise only if you sell or transfer the ownership of the flat.
- Here, if you are just recovering money due to builder's breach and not selling property, capital gains provisions do not apply.
Holding Period & Capital Gains:
- The ITAT ruling states that excess amount beyond your cost (if it qualifies as capital asset sale) may or may not be taxable as LTCG/STCG depending on conditions.
- But since this is compensation for breach/delay, it’s not a capital gains transaction.

Conclusion:

Interest/compensation recovered from builder via RERA is taxable under “Income from Other Sources”.
You should declare ₹37L interest as income in your ITR for the relevant year.
The ₹57L principal is not taxable.

If you want, I can help you draft the relevant section of your ITR or suggest how to report this income properly.

Note: Always good to consult a tax professional for complex cases and confirm based on your entire facts and applicable rulings.