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Jan 12, 2026
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Got more carpet area after property redevelopment? No income tax on extra carpet area if it meets a key condition
In the redevelopment of housing projects, homeowners hand over their rights to the builder, who then redevelops the project to add more units, space or both in the building. Homeowners can receive either cash compensation or extra carpet area in their current homes or both, based on their agreement with the builder.
However, in order to save on long term capital gains tax (LTCG) arising from this type of redevelopment projects, homeowners can take advantage of the Section 54 of the Income Tax Provisions.
Recently Mr. Muni from Bandra, Mumbai did exactly that and even won his case in ITAT Mumbai (ITA No. 2879/Mum/2025). Mr. Muni surrendered the old premises and, in exchange, received newly constructed flats along with some cash for hardship and cost adjustments. Plus, he paid separately to the developer for an additional 205 sq. ft. of space. He claimed a tax exemption under the Section 54 for the capital gains from the redevelopment, including the extra area he bought.
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