Redevelopment Scheme: Whether the difference between the stamp duty value of the new flat and the indexed cost of the old one as a taxable “gift” under Section 56(2)(x)?

 

During the redevelopment process, normally the flat owner offers his own existing flat to the builder who rebuilds it and allocate the higher area flat to the existing owner.

The question arises as to whether the difference between the stamp duty value of the new flat and the indexed cost of the old one as a taxable “gift” under Section 56(2)(x).

 In Anil Dattaram Pitale vs. ITO (ITA No. 465/Mum/2025), the taxpayer received a new flat under a redevelopment agreement in place of his old one. The tax department treated the difference between the stamp duty value of the new flat and the indexed cost of the old one as a taxable “gift” under Section 56(2)(x).

The ITAT rejected this view, holding that this was a case of property replacement and not a gift. Since the old flat was surrendered as consideration, the transaction doesn’t attract tax under Section 56(2)(x). At most, capital gains may arise, with potential exemption under Section 54.

This decision is a significant precedent for homeowners involved in redevelopment, offering tax certainty in an area that impacts thousands across the city.

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The copy of the order is as under:

1742536973-wUeQwy-1-TO