Capital Gains arise from sale of TDR or FSI is Taxable Now

Capital Gains arise from sale of TDR or FSI in Redevelopment is taxable after April 2023

Earlier Income tax Situations

• Redevelopment of residential housing societies is normally carried out generally via few Developers.
• Earlier Income tax Stand: No capital gains tax on sale of Transferable Development Rights (TDR) in absence of cost of acquisition
• In case sale of transferable development rights did not taxable as capital gains tax because of cost of acquisition for the sale of transferable development rights did not exist.

New Change in Income tax under the Budget 2023.

• According to the Income tax Sec 55 is proposed to be change by the Finance Bill, 2023 w.e.f. 1.04.2023. Any development agreement executed on or after 1.04.2023 transferring Floor Space Index rights will be deemed to have been affected by this amendment, which may attract tax liability under the head capital gains as now the cost of such Floor Space Index rights will be presumed to be to be Nil.
• We can also say that, Above said amendment proposed under the budget seeks to nullify the ratio of the decisions discussed in last Para. With respect of our point of view, Amount of tax liability under the head capital gains will be huge.

Redevelopment Issues, Malpractices, Concerns & Checklist

What is Redevelopment?

• Redevelopment refers to the process of reconstruction of the old commercial/ residential premises by demolition of the present structure & construction of a new structure in its place.
• This is done by utilizing the potential of the land by exploiting Transferable Development Rights, additional Floor Space Index (FSI) as prescribed under latest Development Control Regulations (DCR).
• Redevelopment of Old structures is changing Mumbai’s appearance.

Why Redevelopment?

• After certain age (Building after 30+ years), due to wear and tear and exposure to natural elements, building become weak
• Building in dilapidated position or condition
• Uneconomic to repair as cost of major repair is sometimes more than reconstruction
• Impact from corrosion particularly in cities like Mumbai which decreased building life & old buildings are unable to withstand adverse conditions
• Present building has no Lift causing hardships to aged residents needing redeveloped tower with Lift
• Structural repair is not economically feasible to take care of seepage, weak walls and foundations, leaking water pipes, etc
• Aspiration of many occupants have gone up with Indian Economy doing well and they crave for more luxurious building & space with modern luxurious amenities for example Clubs, Sports & health related facilities
• owners or tenants occupants required more area due to increase of family size with change of generation.
• With redevelopment, the members get a new building, more space and monetary benefits without spending any money from their own pockets
• Property prices have skyrocketed making it unaffordable for many land & building owners to look for larger which may be beyond their budget
• Building has unused development rights where they can build a new and higher structure where the additional space can be partly given to present members & Partly sold for a tidy profit (specifically in self-redevelopment)
• Municipality & State govt is giving concessions (of higher Floor Space Index, Transferable Development Rights with lower premium, transparent & speedy approvals) for Redevelopment Projects
• Horizontal expansion is not feasible in a landlocked is land city like Mumbai and thus vertical expansion through redeveloping existing building in a tall towers become only option
• Horizontal expansion means required of more roads, transportation, drainage pipelines and that comes with big cost.

Why few Rebellious Members Obstruct Redevelopment of Housing Societies

• Issues in Redevelopment
• Consider these points before arriving at final decision
• Redevelopment of MHADA Buildings
• Important Caveats
• Concerns about Builder
• Checklist for Redevelopment of Housing Society
• Steps need for Redevelopment of Co-operative Housing Society Building.

Defining of cost of acquisition in case of few assets for computing under the head capital gains -Budget 2023

• Earlier Section 55 Income tax provisions say that, inter alia, defines ‘cost of acquisition’ & ‘cost of any improvement’ for the purposes of computing under the head capital gains tax. But Certain kind of capital Assets like intangible assets or any kind of right for which no consideration has been paid for assets acquisition.
• There is no specific provision which states that the cost of such assets is nil, the chargeability of income tax under the head capital gains from transfer of such assets has not found favour with the Courts.
• Therefore, to define the term ‘cost of improvement’ and ‘cost of acquisition’ of such assets, it is proposed to amend the provisions of section 55(2)(a) & 55(1)(b) so as to provide that the ‘cost of acquisition’ or ‘cost of improvement’ of a capital asset being any intangible asset or any other right ( other than those mentioned in the said section 55(2)(a) & 55(1)(b), as the case may be) shall be ‘Nil’. Above said amendment is will be take effect from the 1.04.2024 and shall accordingly; applicability in relation to the AY 2024-25 and subsequent AY.

Impact of Budget 2023 Changes

• TDRs arising out of an present land was an immovable property, the transfer of such TDR amounted to transfer of a long-term capital asset, & So Income tax taxpayer is liable to be taxed for the consideration received under “Capital gains.”
• Capital Gains arise derived from Transferable Development Rights (TDR) or Additional Floor Space Index (FSI) sale in Redevelopment is taxable under the head as Long term capital Gain after 1^st April 2023

Income tax rate in case of capital Gain regulation in India

Ready Recknor for calculating capital gains tax for all class of Assets.

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