Is compensation for delayed delivery of a flat taxable?

Hi

There are two approaches here:

1. Considering the amount received as a capital receipt and reducing it from your cost of acquisition of the flat.

2. Considering the amount received as a revenue receipt and paying taxes accordingly as Other Sources income.

Although Approach 1 will reduce your Cost of acquisition and thereby increase your capital gains if you sell this property later in future, following this approach is advisable. If you wish to follow approach 1, make sure you get a statement from the builder clearly stating such payments made by him to you and arriving at the final cost of acquisition to you.

Hello,

Such compensations are Capital Receipt and hence Tax Free but still may consider it revenue and ask you to pay tax on it. It is still a debatable option and in case you receive a notice you will have to fight your case out.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, FCA, LLB, CERT. FAFP

There are divergent view on this subject.

1. One view is that you can treat this as a capital receipt and then no need to pay any tax but your cost of aqcuistion of the property will be reduced to that extent. I support this view.

2. Second view is that you have to treat it as revenue income and pay tax on it. Tax department tries to catch under this view.

Please feel free to call revert in case you need more clarity

Thanks and regards

Abhishek Dugar

CA CS B.Com

Hi,

This is a debatable issue. There are two views possible:

1. Treat the compensation as a capital receipt and pay no tax on it.

2. Treat is as revenue receipt and pay tax as per slab rates.

Obviously, option 2 makes the Income-tax Department happier and no assessment will occur. However, option 1 is also a legal option, though the Department may look into it, if your case is picked up for assessment.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B