No LTCG Tax If Property Redeveloped Within 3 Years
In a recent development, experts have stated that there will be no long-term capital gain (LTCG) tax applicable if a property is redeveloped within three years. This clarification is significant as it resolves the ambiguity surrounding the tax implications of redevelopment projects for both homeowners and developers. Experts have advised society members to include a clause in the agreement with the builder, ensuring that the redevelopment project is completed within three years. Failure to meet this deadline may result in the income tax department imposing a long-term capital gain tax. However, some experts argue that taxpayers cannot be held liable for delays on the part of the developer.
Seeking Stamp Duty Exemption for Redevelopment
Sandeep Trivedi, a member of the Housing Apartment Redevelopment Federation, has highlighted the need for stamp duty exemption for redevelopment projects. Trivedi points out that many societies are opting for redevelopment, but there is uncertainty about the impact of LTCG. He calls for the state government to provide stamp duty exemption to support redevelopment initiatives.
Clause for Project Completion
Mukesh Patel, a tax expert, explains that as per Section 54 of the Income Tax Act, LTCG exemption is applicable if a new house property is bought within three years of selling the old house. Patel suggests that the same exemption can be applied to redevelopment projects, allowing the house owner to claim that they have entered into an agreement with the builder for a new house property and should not be held liable for delays in completion. However, as a safety measure, Patel advises society members to insist on a clause stating that the project should be completed within 36 months. Jainik Vakil, chairman of the GCCI direct tax committee, assures society members that if a redevelopment project is not completed within 36 months, the issue of LTCG may arise, but they should not worry about it. He points out that there is no consideration in such deals, and various court judgments have defended homeowners in similar cases.
Tax Implications for Homeowners
Jitendra Shah, a builder active in redevelopment deals, explains that existing house owners who enter into redevelopment agreements with builders may receive rentals, which are calculated as part of the homeowner’s income. If gift money is provided, it will be taxable. However, if it is given as compensation, it will not be considered as income for the homeowner. This clarification regarding the non-applicability of LTCG tax on redevelopment projects within three years brings relief to homeowners and developers alike. It encourages more societies to consider redevelopment and provides clarity on the tax implications involved. As the real estate sector continues to evolve, such developments are essential for fostering growth, encouraging investments, and providing a favorable environment for all stakeholders involved.
