S S Dahale ( Agri and business) 31 August 2016
Basic question is geneartion of TDR ( fungible FSI -Hypothetical rights of development in lieu of affaected area under DP plan /acquisition ) from a muncipal Corporation is liable for LTCG, ? yes or No , If Yes how to compute it ? If No, will it be a business income for a owner / holder of TDR certificate ?
Mr.ABC is an entrepruener, having property , since sevearl years , period of more than 3 years within municipal limits , which is affected by Development Plan-Town Palnning proposals l like widening of roads to DP road , new road , garden, vegetable market ,
As State Govt. and municipal Corporation is having paucity of funds , and as per sanctioned policy has offered compensation of affected area (assume 1000 SqMtr ), to give TDR ( transferrable development rights) double FSI ( 2000 Sqmtr) , against that affected area, that either can be used by HIM at other locations (within same city) by him , or can sell it / transfer it as TDR to other persons .
Now procdure to Do so invloves , REGSITERED RELINQUISHEMENT DEED by owner / POA holder of affected land favoring Munc.Corpoartion , assume that land of 15000 SqMtr. is held by him since 2006 ( govt. valuation Rs. 75 lacs), he relinqushed 1000 SqMtr ( without any monetory compensation) ( govt valuation for erstwhile 1000 SqMtr. = Rs.20 lacs ) favoring MC in 2016, and got that TDR certificate of 2000 SqMtr,
Now , if he uses this TDR anywhere within city ,present cost of that TDR (2000 SqMtr) is around Rs. 60 lacs , if he sells it in part current year he can genearte Rs.80 lacs.
question is is LTCG is payable for TDR (twice of permissible FSI of affacted area ) so generated by him ( retaining that TDR certicate SAFELY with him self ) or otherwise
Aditi Kaur (Practising CA) 01 September 2016
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Dhirajlal Rambhia (KVO Merau Kutchh) 31 August 2016
In short:: there are many High court orders declaring the gains of the TDR as Capital Gain; BUT BECAUSE OF COST OF AQUISITION BEING NIL, NOT TAXABLE to the owners holding it as capital assets.
For more details refer: https://sktyagidt.com/upload/article/Tax-treatment%20in%20respect%20of%20receipt%20on%20transfer%20or%20sale%20of%20Transferable%20Development%20Rights%20_TDRs_.pdf