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Mumbai ITAT rules compensation for flat delivery delays is not taxable under Section 50C. Experts say this offers relief to taxpayers facing project delays.
Section 50C Can’t Apply Without Actual Property Transfer, Rules Mumbai ITAT
In a significant ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that compensation received for delay in construction or delivery of a flat cannot be taxed under Section 50C of the Income Tax Act. The tribunal clarified that such compensation is distinct from sale consideration and does not attract stamp valuation provisions.
The tribunal also emphasised that the delay compensation is essentially a form of interest paid by the builder for the inconvenience caused to the homebuyer due to delayed possession. As such, it is taxable under ‘Income from Other Sources’, in line with provisions applicable to interest income, and is subject to tax at the individual’s slab rate.
Commenting on the ruling, Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, said the decision “clearly brings out that sale consideration and compensation are different.” She explained that Section 50C applies only when the sale consideration for a transfer of immovable property is lower than the stamp duty value. “In this case, the transfer involved a flat received in exchange for land, and the additional compensation was purely compensatory — not a sale consideration,” Basrur noted.
She added that the judgment offers timely relief for taxpayers amid rising cases of project delays and associated compensation payments. “With delays in projects and compensation becoming common, this decision will give the desired relief to purchasers and help settle several pending disputes,” she said.
CA Akshay Jain, Direct Tax Partner at NPV & Associates LLP, echoed similar views, clarifying the tax treatment of such payments. “Since there is no transfer of any capital asset at the time of receiving compensation for delayed possession, it cannot be taxed under capital gains,” he said. Jain added that such payments are “taxable under the head ‘income from other sources’,” not as capital receipts.
On the applicability of Section 50C to extinguishment of development rights, Jain explained that the section requires an actual transfer of land or building. “In case of extinguishment of development rights, there is no transfer of immovable property, so Section 50C cannot be invoked,” he said, citing the Mumbai ITAT’s ruling in Suvarna Chandrakant Bhojane vs ITO that supported this interpretation.
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst…Read More
Varun Yadav is a Sub Editor at News18 Business Digital. He writes articles on markets, personal finance, technology, and more. He completed his post-graduation diploma in English Journalism from the Indian Inst… Read More
November 09, 2025, 16:43 IST
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