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Redevelopment Agreement

jaee sawant (student) (42 Points)

19 April 2021

We have entered into a redevelopment Agreement with builder for our bungalow.
For calculating capital gains,
what is the cost of acquisition of the bungalow?
whethr there will be any capital gains ?

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3 Replies

CA Puja Sharma (Chartered Accountant) (4914 Points)
Replied 19 April 2021

In case of redevelopment of house property, capital gains arises in two scenarios: two times -

1. When you will receive the possession of the redeveloped house. Cost of acquisition of the bungalow will be the original price you paid at the time of purchase plus the indexation benefit.

2. When the redeveloped house property will be sold in future.

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CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 19 April 2021

Tax laws were recently amended to tax the capital gains arising to an individual from a real-estate development project, where an existing property (either land, building or both) is handed over to a builder to re-develop, in the financial year in which the competent authority that approved the building plan issues a certificate of completion for either the whole or part of the project. Your family will need to have a registered agreement with the builder permitting the development of a real estate project. Such capital gains will be taxable in the hands of each family member depending on their share in the property.

Gains from the sale of any immovable property held for more than 24 months is treated as long-term capital gains (LTCG) and is taxable at 20.60% (plus applicable surcharge). The taxable LTCG is computed as the difference between the sale proceeds value (determined as below) net of any expenses incurred for the transfer (such as brokerage) and the indexed cost of acquisition or improvement of the property (in respect of costs incurred to acquire the property). Since the property was inherited by you, the period your ancestors held the property will also be considered when computing the total holding period.

The stamp duty value (as on the date of issue of the completion certificate by competent authorities) of the property that you receive from the builder after re-development, and any additional consideration paid by the builder, is treated as the sale proceeds of the ancestral property handed over for re-development.

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