Should I receive hardship payments if I don’t move to an alternate accommodation during redevelopment?

Ans: The Finance Act, 2017 inserted a new sub-section 5A in section 45. This deals with the capital gain in case of re-development of any land or building or both. This effectively breaks up the transaction into two parts-
1. Transfer out of share in property to the developer (Triggers capital gains)
2. Investment into the house provided by the developer.
If one chooses to cash out, you will need to pay capital gains based on (1) above. If there is an alternate property provided to you, this is treated as reinvestment under section 54. You need not need to pay tax if there is no cash payout to you as part of the redevelopment.

Ans: As per the provision of the Income Tax Act, in case owner of residential property, transfer said building for the redevelopment project and because of said transfer, any capital gains arising to those individuals, such gains would be taxable in the year in which the competent authorities issue a certificate of completion for such project. However, in case where the said individual transfer his share in the redevelopment project i.e. transfer the building before the said completion certificate is issue, the capital gains shall be taxable in the year in which the transfer takes place and the above provision of the act would not be applicable.Therefore, if Mr. Prasanna D does not transfer his share in the redevelopment project till the date of issue of completion certificate, then the above provision of the act applied and tax required to be paid in the year when completion certificate is received. However, if Mr. Prasanna D get remunerated from developer it seems that Mr. Prasanna D selling his share in redevelopment project before issue of completion certificate and therefore the tax require to be paid in the year when he actually entered into the agreement with developer.And for the purpose of calculation of capital gains, the stamp duty value (SDV) of the building as on date of issue of completion certificate, pertaining to the owner’s share in the redevelopment project or any remuneration received shall be taken into account and tax require to be paid on such gain arising to Mr. Prasanna D.

Ans: Yes matter is still litigative. There are certain Judgments in which it was held that Compensation paid by builder during redevelopment of flats is capital receipt and not taxable. Considering amount of compensation you have received and cost of litigation, in my view, you should offer the said compensation to tax as Income from other sources which will taxed at slab rate.

Ans: There are Judgements in which it was held that rent as well as hardship compensation being capital receipt not taxable. However, income tax department may consider it as Income from other sources and matter can be litigative.