Money received after cancellation of deed is taxable or not

Money received after cancellation of deed is taxable or not

Hi All,

I had booked an underconstruction flat in Jun 2014 by paying Rs 9.25 lakh. Further I had paid for Service Tax, VAT, Registration and stamp duty fees and my agreement was get registered with the registrar office. I took home loan which has financed 44 lakh to builder. Flat was promised to be delivered by Dec 2016. Because of delay in possession I have raised a complaint in Maarashtra RERA. After that builder approached me and agreed to settle the matter outside MahaRERA. He agreed to refund Rs 75 lakh for executing the cancellation of deed. Out of Rs 75 lakh, Rs 41.80 went to home loan finance company for closure of home loan and release of original mortgage documents and rest amount of Rs 33.19 lakh has been given to me.

I wanted to know under which income tax act/rule I have to file taxes - Income from other sources OR Capital Gain Tax (will it be Short term or long term). What could I do to save tax on this amount.

Asked 7 years ago in Income Tax

The differential amount what you paid to builder and what you get will be taxed as income from other source.

Vidya Jain

CA, Kolkata

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When a flat is booked, normally there will be two agreements/deeds, one for sale of the undivided share of land between the buyer and the owner of the land with the developer as a party to the deed, normally holding GPA and another one a development agreement for developing the flat. If it is so, is there transfer of ownership when the agreement was registered with the registrar office and this can be ascertained by seeing the registered document. Now the default by the builder is in developing the flat in accordance with the development agreement. The amount of Rs 75 Lakhs received by you may therefore be construed to be received towards return of the ownership, if any, to the builder and also as compensation for the failure to complete the development as per the development agreement.

The tax liability therefore depends upon the nature of the agreements executed by you and the documentary evidences for the payment of Rs 75 Lakhs.