Settlement with Builder - Tax Liability

Thank you all for your inputs. What is sale of rights? How to implement it in correct way? Builder asking to give DD for full amount in the buyers account. Any risk in this?

Sir. Please connect on phone. Your last reply regarding DD has opened a whole net dimension of queries.

The ₹20 lakh excess is not automatically interest or capital gain; its tax treatment depends on what the settlement agreement says it compensates. The original ₹40 lakh is generally a refund of the amount paid and is not income, subject to reconciling it with the actual payment history. The ₹20 lakh may be taxable as “Income from Other Sources” if it is compensation for delay, breach, or loss of use of money; if the agreement separately identifies it as interest, it is generally taxable under that head. A capital-gains treatment may arise only if the payment is genuinely for surrender or transfer of a capital asset or a right in the property, and the facts and documents support that characterisation. A mere label in the agreement is not conclusive.

• Ask the builder to execute a detailed settlement/release deed stating the amount refunded, the purpose and basis of each additional component, and that the booking/allotment rights are cancelled. Keep the BBA, payment receipts, cancellation documents, consumer-court pleadings/orders, settlement correspondence, and bank proof.
• Check whether the builder deducts TDS and issues the relevant certificate; TDS, if any, is only credit against the final tax liability, not the final tax calculation.
• Taxability and the applicable rate depend on the nature of the payment and the year of receipt. Have the deed reviewed before signing, particularly if the ₹20 lakh is described as interest or compensation.

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