Income tax will not be applicable on this money received from the builder, lakhs of people got relief

The Income Tax Appellate Tribunal has given a big relief to the taxpayers in one of its latest decisions. This relief is for such taxpayers, who for some reason have to live on rent instead of their own house and the builder is paying the rent money. In such cases the payment received from the builder cannot be considered as income of the taxpayer concerned under the Income Tax Act.

Redevelopment happening in cities

Before proceeding further, let us tell you that the paucity of land in metro cities and rising property prices are making redevelopment a better option. In this, those buildings are rejuvenated, whose life span is about to end. This is a good deal for both the landlords and the investors. Home owners get access to modern amenities, while investors get a property at a good location. They earn profit by selling what is left after giving their house to the home owners.

What is the decision of the tax tribunal?

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that due to the re-development project, the old flat owner will not have to pay tax on the rent received as compensation from the builder. When an old housing society is redeveloped, that is, it is built from scratch, the builder provides the landlords with a place to live or pays money to live on rent, until they get their own house Is. Usually this money is used to stay on rent in some other house.

Why the controversy over these matters?

Under the Income Tax Act, rental income ie income received in the form of rent is taxable. In such a case, the matter becomes whether the Compensatory Rental ie the rent received as compensation should be considered as income or not.

What did the tax tribunal say?

The tax tribunal has said in the decision that in the event of redevelopment, tax will not be levied on the rent received during the time a person is displaced i.e. away from his own house. The Mumbai bench has held that the compensation rent is a capital gain and not any kind of income, hence the money received in the hands of the flat owner will not be taxed.

On which matter was the decision taken?

This decision has come on the appeal of Ajay Parasmal Kothari. His case came up in the computer-based scrutiny for the financial year 2012-13, following which the tax official found that Kothari had received Rs 3.7 lakh as compensation rent from the builder. However, he did not use this money for living. The tax authority had treated this amount as taxable income under income from other sources. That is, he had to pay tax on this amount according to his tax slab, against which he appealed to the Commissioner (Appeals) and later to the ITAT.

Who will get relief?

The tribunal noted that even though the taxpayer lived with his parents, he had faced difficulties in vacating his flat for redevelopment. In this case, the rent received for compensation is not taxable. If your building is also being rebuilt, then this decision is also useful for you. This will bring a lot of relief to lakhs of people, as a large number of redevelopment projects are going on in many cities.