JDA capital gains for landowners: value, cost, sections 54 and 54F

This is Part 2 of a six-part study of how income tax treats joint development agreements. Part 1 asks whether the agreement is a transfer and in which year the landowner is taxed, including section 45(5A) in full. Part 2 computes the gain: value, cost, rate, the flats received and the exemptions. Part 3 covers Hindu undivided families, co-owners, heirs, minors, non-residents, dealers, firms and companies. Part 4 covers trusts, societies, agricultural, leasehold, new-tenure and town planning scheme land. Part 5 is the developer’s side. Part 6 covers tax deduction at source, searches, reassessment and the move to the Income-tax Act, 2025. Housing society redevelopment has two separate series: for the developer, the schemes, payments to members and revenue recognition and the minimum tax; for members, transfer, cost and holding period, hardship, corpus and rent, exit and resale and tenants, slums, shops and the society.

Once Part 1 has fixed the year, the landowner’s computation turns on four numbers: what he received, what the land cost him, which rate applies, and how much he can shelter. For an individual or Hindu undivided family under a registered area-sharing agreement, section 45(5A) of the Income-tax Act, 1961 answers the first: the stamp duty value of his share of the project on the date of the completion certificate, increased by any money received. Everyone else, and every individual whose agreement is unregistered, pre-dates the section or is for a share of revenue, is back on the general law, where the measure of a consideration paid in bricks and mortar has been fought over for twenty years.

The open disputes are these: whether section 50C can reach a grant of development rights; which date decides the 23 July 2024 rate where the agreement came before that day and the certificate after; when the flats received start to be held; and whether a landowner who receives several flats from one project can use one of them for section 54F while the others are completed within three years.

Key points

• Under section 45(5A), the full value is the stamp duty value of the owner’s share on the certificate date plus money received (“the consideration received in cash, if any” until assessment year 2023-24, and cash, cheque, draft “or by any other mode” from 2024-25; whether cheques counted earlier is argued in Part 1).
• Outside section 45(5A), the Karnataka High Court (Ved Prakash Rakhra, 2012; Sarojini M. Kushe, 2021) and the Bangalore and Visakhapatnam Tribunals reject the developer’s construction cost and take the agreed, market or guidance value.
• Section 50C on development rights: against the Revenue, Minal Urmil Shah (Ahmedabad, 2025); for it, Vidarbha Veneer (Bombay High Court, 2025) on rights “held” in land.
• On or after 23 July 2024 the rate is 12.5 per cent without indexation; only a resident individual or Hindu undivided family gets the 20 per cent indexed comparison for land acquired before that date. Under section 45(5A), whether the “transfer” takes place at the agreement or the certificate has not been decided.
• Section 54F, not section 54, normally applies to land. One flat received as consideration has been allowed as the new asset in the reported cases for years before 2015-16, and the Gujarat High Court left such a claim allowed in Gaurang S. Desai (2008); whether the others from the same project trip the proviso is undecided.

What the landowner receives, and the five ways to value it

A landowner’s full value of consideration is whatever section 48 says he received or became entitled to, unless a deeming provision substitutes another figure; under a joint development agreement there are five candidates, and which one applies depends on who the landowner is and what he signed.

1. The developer’s cost of constructing the landowner’s share.
2. The market value of the constructed area received, or its guidance (in Gujarat, jantri) value, or the value the agreement itself puts on the exchange.
3. The stamp duty value of the land given up, under section 50C, where the land, or an undivided share in it, is conveyed or the agreement is stamped as a transfer of it.
4. The fair market value of the land given up, under section 50D, where the consideration “is not ascertainable or cannot be determined”.
5. The stamp duty value of the owner’s share on the completion certificate date, plus money received, under section 45(5A), which applies only to an individual or Hindu undivided family under a registered agreement for a share in the project.

The fifth is a statutory code and excludes the others for those within it. For everyone else (a company, firm, limited liability partnership, trust, association of persons or society; an individual with an unregistered agreement, an agreement taxed under the general law in a year before assessment year 2018-19, or a pure revenue-share deal; an owner who sells his share before the certificate under the proviso) the first four compete.

Two features of the general-law dispute should be kept in view throughout. First, the valuation is made at the date of transfer, which under a registered agreement with possession is usually years before a single floor is built; the developer’s eventual cost is a figure from the future. Second, the dispute is partly revenue-neutral, because on the exchange view whatever value is taxed on the land becomes the cost of the flats when they are later sold. The Karnataka High Court relied on that at paragraph 12 of Sarojini M. Kushe (“the entire issue is revenue neutral”), and the Bangalore Tribunal, for stock in trade, at paragraphs 9.1 and 9.2 of L.K. Trust. It holds only if the Revenue later gives the flats a matching cost, and only over the life of the flats; in Akhilesh Babu (below) the Revenue accepted the value taxed but cut the cost of the land the owners had kept, until the Tribunal corrected it.

Developer’s cost or market value: the decided cases

On the authority read for this Part, the developer’s construction cost is not the measure of the landowner’s consideration, and the Karnataka High Court has said so twice; the Revenue’s support for that measure comes from older Tribunal orders, some of which simply accepted it without reasoning.

CIT v. Sri Ved Prakash Rakhra (Karnataka High Court, ITA 1081 of 2006, 28 August 2012, K. Sreedhar Rao and B. Manohar JJ) concerned a property on Aga Abba Ali Road, Bangalore, co-owned by three brothers and given in 1994 to Embassy Investments for development. Clause 1.1 of the agreement provided for the owners to sell a 50 per cent undivided interest in consideration of a non-refundable deposit of Rs 21,00,000, 50 per cent of the super built area, 50 per cent of the basement parking and terrace, and rent-free accommodation, and recorded an “exchange value” for 50 per cent of the land of Rs 1,16,70,000. The assessee had returned the gain as nil, on a value of Rs 66,00,000 fixed in the agreement; the Assessing Officer took half the developer’s reported construction cost of Rs 2,86,22,931, that is Rs 1,43,11,465, and computed the assessee’s one-third gain at Rs 47,64,821. The Court, at paragraph 9, held: “The exchange value as specified in the project development agreement can be taken as the basis for computation … The cost incurred by the developer need not necessarily represent only a cost of construction. The detailed particulars are not given. The transaction of Joint development is one of exchange. The consideration specified in the said document represents the market value on the date of entering into the agreement.”

PCIT v. Smt. Sarojini M. Kushe (Karnataka High Court, ITA 475 of 2016, 1 December 2021, S. Sujatha and Hanchate Sanjeevkumar JJ) is the second. She offered Rs 73,71,275 in a revised return for assessment year 2011-12; the Assessing Officer taxed Rs 5,68,19,443, applying a construction cost of Rs 1,600 a square foot taken only from the developer’s letter. The Commissioner (Appeals) directed guidance value and the Tribunal upheld him. The Court refused to interfere: “It cannot be ruled out the possibility of the developer giving an inflated figure” (paragraph 13); section 50D, though not yet in force for the year, “would throw some light” (paragraph 13); and “the guidance value of the land or the guidance value of the building would be appropriate mode to determine the full value of consideration in the case of a transfer where consideration for the transfer of a capital asset is not attributable or determinable” (paragraph 15). It dismissed the appeal because “the issue relates to pure question of facts” (paragraph 17). The Revenue will call that a fact-bound dismissal; the landowner will point out that paragraph 15 states a method, and that the Court refused to follow ITO v. N.S. Nagaraj, a Tribunal order using construction cost (paragraph 16).

• In L.K. Trust v. DCIT (ITAT Bangalore, ITA 1147 and 1375/Bang/2025, assessment year 2018-19, 9 June 2026), a family trust’s land at Palace Road, Bangalore, converted to stock in trade in 2009 and developed with Prestige Estate Project Ltd (as the order names it), the Assessing Officer took the developer’s cost of about Rs 215.43 crore for the trust’s 55 per cent share of 4,97,902 square feet and added about Rs 167 crore as undisclosed business income. The Tribunal held that “The cost of construction incurred by the developer is not the price paid to the assessee” (paragraph 8.8), that the value of the land given up was not the measure either (paragraph 8.11), and that the Karnataka guideline value of Rs 1,208 a square foot “can be adopted as the FMV for the valuation of the constructed area received by the assessee” (paragraphs 8.13 and 8.14); it accepted the trust’s own higher figure of Rs 48.43 crore and deleted the addition (paragraphs 9 and 9.3). The trust’s position as a landowner outside section 45(5A), and its stock-in-trade conversion, are discussed in Part 4 and Part 3; the Revenue will distinguish its valuation as a business computation.
• In Sitha Mahalakshmi Katamaneni v. ITO (ITAT Visakhapatnam, ITA 226/VIZ/2026, assessment year 2015-16, 31 August 2026), the owner had received 8 of 20 flats under an agreement of 5 August 2014. The Assessing Officer took the builder’s cost of those flats, Rs 10,28,11,894, applied her 40 per cent share and added Rs 2,29,25,510. The Tribunal held that “the Ld.AO has completely erred in adopting full value of consideration on the basis of cost incurred by the developer” (paragraph 11), because the cost was incurred more than two years after the agreement and its authenticity was doubtful, and accepted the owner’s computation on fair market value at the date of transfer as “in accordance with the provision of section 50D” (paragraph 11), following Ved Prakash Rakhra (paragraphs 12 and 13).
• Earlier, in K.G. Shivarudraiah v. ITO (ITAT Bangalore, 26 May 2017, paragraphs 5 and 6), the Tribunal remitted the computation in the terms of a co-owner’s order, which took “the fair market value of the share of the assessee in the constructed area as on the date of” the agreement; in Y.S. Mythily v. ITO (ITAT Bangalore, 9 June 2017, paragraph 19) it followed Ved Prakash Rakhra in taking the “cost of structure as on the date of agreement” instead of the developer’s actual cost.

The Revenue’s authorities. In Smt. P. Prathima Reddy v. ITO (ITAT Hyderabad, ITA 1393/Hyd/2010, 14 September 2012), following earlier Hyderabad orders that took “the actual cost of construction” of the flats as the owner’s consideration but refused the figure “determined in the case of the developer”, the Tribunal remitted the computation on a construction-cost base adjusted for price inflation, with the builder’s own Rs 925 as a ceiling: “while determining the value of consideration it shall not go above Rs. 925 per sft.” (paragraphs 29 and 30). In K.R. Yashodha v. ITO (ITAT Bangalore, ITA 745/Bang/2017, 6 October 2017), the Tribunal, having upheld a reopening, accepted the Assessing Officer’s computation of a gain of Rs 55,08,127 on construction cost, made with “the assistance of” section 50D for assessment year 2007-08, because it found no “infirmity in the calculation” (paragraph 15).

Where it stands. The Revenue’s best argument, at full strength, is this. Section 48 taxes the consideration “received or accruing”, and in an exchange of land for construction what the owner receives is the developer’s performance; its cost is a real, audited figure, whereas guidance value is an administrative rate fixed for stamp duty, and sections 50C and 50D are deeming provisions that apply only on their own conditions. The landowner’s answer is that the developer’s outlay is the developer’s cost, not the owner’s receipt, often swollen by finance, statutory and transferable development right costs, which the Commissioner (Appeals) in L.K. Trust had to strip out before the Tribunal rejected the measure altogether (paragraph 8.8); that the consideration must be valued when the transfer takes place, when nothing has been built (Sitha Mahalakshmi, paragraph 11; Vivekanand Padegal, paragraph 6, below); and that where the agreement states an exchange value, Ved Prakash Rakhra takes it as the market value on that date.

Section 45(5A): the stamp duty value of the share plus money

For an individual or Hindu undivided family within section 45(5A), the full value is fixed by statute and nothing in sections 48, 50C or 50D can displace it: it is “the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by” the money consideration.

What is valued. The share “in the project”, not the land given up. Explanation (iii) defines stamp duty value as “the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both”. “Assessable” means that no stamp duty need actually be paid on the certificate date; the value is notional, read off the jantri for the flats and their undivided share in the land.

What is added. Until assessment year 2023-24, “the consideration received in cash, if any”; from assessment year 2024-25 (Finance Act, 2023, Act No. 8 of 2023), “any consideration received in cash or by a cheque or draft or by any other mode”. Whether a cheque paid on signing was added for certificates issued in assessment years 2018-19 to 2023-24 is argued in Part 1; whichever answer is taken there must be carried consistently into the cost of the flats under section 49(7), because the cost borrows the same figure. Whether rent, hardship money or delay compensation is added is undecided: the owner says, on the Mumbai Tribunal’s section 194-IC reasoning in Nathani Parekh Constructions (11 July 2024, paragraph 10), that such a sum compensates dispossession and is not paid “as part of a share in the land or building or both”, and the Revenue that from assessment year 2024-25 “any other mode” catches every sum paid under the agreement; either view carries into the section 49(7) cost. A deposit the owner forfeits when the agreement ends is decided in Part 5.

What is missing. Unlike section 50C, the sub-section has no 110 per cent tolerance and no reference to a Valuation Officer. The landowner can argue that section 50C(2) applies by analogy, or that “assessable” imports the stamp law’s own appeal and adjudication machinery, but no decision on either was found. The Revenue’s answer is short: the section adopts the stamp value as a deemed figure and offers no exception.

The Department’s explainer. The Department’s taxpayer page on joint development agreements says “it shall be deemed that the capital asset is transferred during the year in which the certificate of completion” issues, and that resident individuals and Hindu undivided families “can still apply indexation on land or building acquired before 23-07-2024”. Both go beyond the text: the sub-section makes the gain chargeable “as income of the previous year in which the certificate of completion … is issued” without deeming the date of transfer, and the second proviso to section 112(1)(a) is a cap (“such excess shall be ignored”), not an option to index. Whether the deeming of year and value implies a certificate-date transfer for the rate rules is the open question taken up below; the explainer states the Revenue’s reading of it, not authority.

Section 50C and the joint development agreement: does it reach development rights?

Section 50C substitutes the stamp duty value only where the assessee transfers “a capital asset, being land or building or both”, for a consideration “less than” the value adopted “for the purpose of payment of stamp duty in respect of such transfer”; whether a grant of development rights is a transfer of land for this purpose is undecided above the Tribunal in Gujarat, and the authority divides.

For the landowner. In DCIT v. Minal Urmil Shah (ITAT Ahmedabad, ITA 1075/Ahd/2023, assessment year 2012-13, 2 January 2025), land registered on 7 December 2011 for Rs 1,45,75,000 in the names of the assessee and a co-owner had been given for development to Sumangal Reality Creators, the co-owner receiving Rs 50,00,000 and four flats valued at Rs 93,40,000. The Assessing Officer adopted the jantri value of Rs 5,32,65,000 under section 50C and taxed short-term gain of Rs 3,16,37,500; the Commissioner (Appeals) deleted it. The Tribunal held, at paragraph 10: “The said provision is applicable only on transfer of a capital asset being land or building or both”; “Further, the provision of section 50C of the Act is not found applicable on the transfer of development rights.” Its first ground, though, was factual: she “was only a name-lender on behalf of the partnership firm” (paragraph 9), and “there was actually no transfer of any development rights” (paragraph 10). The section 50C sentence is an additional reason, but it is the only Ahmedabad statement found that section 50C does not apply to development rights, and it sits with the earlier Ahmedabad line on booking and banakhat rights (Yasin Moosa Godil and two later orders), which Part 3 of the redevelopment members’ series sets out.

The Karnataka High Court’s judgment in V.S. Chandrashekar v. ACIT (ITA 70 of 2015, 2 February 2021) could not be found, but its paragraph 11 is reproduced identically in a later Bangalore Tribunal order (ITA 243/Bang/2014, 25 June 2024) and by the Mumbai Tribunal in Vanraj Merchant (paragraph 30): “wherever the legislature intended to expand the meaning of the land to include rights or interests in land, it has said so specifically”, naming sections 35(1)(a), 54G(1), 54GA(1), 269UA(d) and the Explanation to section 155(5A), so that section 50C “does not apply to a case of rights in land”. The assessee there held an unregistered agreement to buy land and joined the vendor’s sale as a consenting party; he was not a transferor of land.

For the Revenue. Vidarbha Veneer Industries Ltd. (in liquidation) v. ITO (Bombay High Court, Nagpur Bench, Income Tax Appeal 34 of 2022, 1 April 2025, Avinash G. Gharote and Abhay J. Mantri JJ) is the strongest High Court authority for applying section 50C to a right in land. The assessee had taken an assignment of a lease of MIDC plots. The Court held: “What is material to note is, that the expression is ‘held by an assessee’ and not owned by an assessee … The holding can be either as an owner, lessee, sub-lessee, allottee, tenant, licensee, gratuitous licensee or any other mode, permissible or recognized by law” (paragraph 6); “transfer” in section 50C(1) “will have to be given widest amplitude” (paragraph 7); and “We are therefore, not in agreement with what has been held in Atul Puranik” (paragraph 8), finding Greenfield Hotels and Estates “of no assistance” in the same paragraph because it rested only on the Tribunal’s view in Atul G. Puranik. The Mumbai Tribunal in Vanraj Ranchhoddas Merchant v. ITO (ITA 5234/Mum/2025, 29 December 2025) distinguished it (paragraphs 33 and 34) and, “on the peculiar facts of the present case” (paragraph 35), held that an assigned life interest was “a limited and determinable life interest coupled with an undivided share and not land or building or both” (paragraph 36); it assumed, without deciding, that Vidarbha reaches “bare hold rights” (paragraph 33). In Sanjay Kumar Sanghi v. ITO (ITAT Hyderabad, ITA 176/Hyd/2021, 23 March 2022), where a 50:50 development agreement for 864.52 square yards at Banjara Hills had been “got registered as sale deed”, a revision under section 263 was upheld because the Assessing Officer had ignored section 50C where the sub-registrar valued the whole property at Rs 4,96,15,000 and the owner had returned Rs 1,94,50,000 for her half (paragraph 11).

The argument at full strength. The Revenue will say that a Gujarat landowner who signs a registered agreement, hands over possession and an irrevocable power of attorney, and often conveys an undivided share to the developer or its nominees, transfers land by any description; that Vidarbha reads “held” and “transfer” in their widest sense; and that the Explanation to section 269UA(d)(i), imported into section 2(47) and now written into section 2(109) of the 2025 Act, already treats rights in land as land. The landowner’s answer is that the section 269UA definition is imported only for clauses (v) and (vi) of section 2(47), not for section 50C; that Chandrashekar’s reasoning on the legislature’s choice of words applies directly; that until a conveyance the developer holds a contractual licence, not land; and that a Tribunal faced with two non-jurisdictional High Courts differing in approach may follow the view favourable to the assessee. The Revenue will reply that Vidarbha and Chandrashekar do not truly conflict, because one was a lessee transferring his lease and the other an agreement-holder who transferred nothing.

Two Gujarat refinements. First, where the stamp duty paid covers land and construction together, it must be apportioned before section 50C is applied to the land: in DCIT v. Kantibhai Tapubhai Savalia (ITAT Ahmedabad, ITA 2684/Ahd/2016 with C.O. 13/Ahd/2017, 25 October 2018), on Muthiya land given under a development arrangement, the Tribunal upheld deletion because “the stamp duty was not paid exclusively for the plot of land” and the price disclosed for the plot “was higher than the value of land” (paragraph 8). Second, the Gujarat pattern of an agreement-cum-development agreement followed years later by a conveyance is the commonest source of section 50C additions: in Dilip Devjibhai Patel v. DCIT (ITAT Ahmedabad, ITA 101/Ahd/2023, 7 June 2024), non-agricultural land at Atladara, Vadodara, bought for Rs 62,42,000, was sold under an agreement to sell and a development agreement, both of 30 April 2008, for Rs 75,00,000; the conveyance of 3 March 2011 carried a stamp value of Rs 4,49,76,000, the Valuation Officer valued it at Rs 1,23,00,940, and the Tribunal remitted the section 50C issue with a direction to consider the valuation report the assessee had filed (paragraph 8).

Section 50C mechanics: the tolerance, the agreement date and the Valuation Officer

Where section 50C applies, three provisos and a reference procedure decide how much it bites; the first two provisos can be planned for at signing, the third applies automatically, and the reference must be invoked by the landowner himself.

The tolerance and its history. The third proviso deems the actual consideration to be the full value “where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and ten per cent of the consideration”. On the Department’s footnotes there was no tolerance before assessment year 2019-20; the Finance Act, 2018 inserted a 105 per cent band from assessment year 2019-20, and Act No. 12 of 2020 (the Finance Act, 2020) substituted 110 per cent from assessment year 2021-22. Every Tribunal decision found, however, applies the band retrospectively. In Smt. Cheryl Maria Fernandes v. ITO (ITAT Mumbai, ITA 4850/Mum/2019, assessment year 2011-12, 15 January 2021), on a Chembur flat sold for Rs 75,00,000 against a stamp value of Rs 79,91,500, the Tribunal held: “There is no good reason for holding the curative amendment to be only as prospective in effect” (paragraph 7), and “These amendments are thus held to be retrospective in effect” (paragraph 8). The Bangalore Tribunal followed it for assessment year 2016-17 in Nabhiraj Ratna Balraj v. ITO (ITA 603/Bang/2024, 26 June 2024). The Revenue’s argument is that the Finance Acts of 2018 and 2020 stated their own commencement dates and that the two-step increase shows a choice for later years; no High Court has held the tolerance retrospective. The landowner’s answer is that Cheryl Maria Fernandes is a coordinate Bench decision for the Ahmedabad Tribunal, to be followed on like facts unless the Bench recommends that the President constitute a Special Bench, and that the Madras High Court’s reasoning on the agreement-date proviso (below) applies equally.

The agreement date. The first proviso, from assessment year 2017-18, allows the stamp value “on the date of agreement” fixing the consideration, where the agreement and registration dates differ; the second confines it to cases where some of the consideration was received by account payee cheque, draft, electronic clearing or another prescribed electronic mode “on or before the date of the agreement for transfer”. The Madras High Court in CIT v. Vummudi Amarendran (T.C.A. 329 of 2020, 28 September 2020), on an agreement of 4 August 2012 with a Rs 6 crore advance by banking channel, applied the Supreme Court’s reasoning in Calcutta Export (a proviso “added to remedy unintended consequences and supply an obvious omission” is retrospective) and held that “the proviso to Section 50C(1) of the Act should be taken to be retrospective from the date when the proviso exists” (paragraph 12; see also paragraphs 14 and 15). A single Member of the Ahmedabad Tribunal had reached the same result in Himmatbhai Dharamshibhai Sonani v. ACIT (ITA 1237/Ahd/2013, 30 September 2016), holding “the provisos to Section 50C being effective from 1st April 2003” (paragraph 9) and remitting to adopt the stamp value on the date of a registered 2005 agreement for agricultural land of a Surat assessee, if part payment by banking channel was confirmed.

The Valuation Officer. Section 50C(2) allows the Assessing Officer to refer the valuation where the assessee “claims before any Assessing Officer” that the stamp value exceeds fair market value and has not disputed it under the stamp law; sub-section (3) caps the result at the stamp value.

Section 50D: where the consideration cannot be determined

Section 50D, in force from assessment year 2013-14, values the transfer at “the fair market value of the said asset on the date of transfer” where the consideration “is not ascertainable or cannot be determined”; for a landowner outside section 45(5A) who transfers on signing and receives flats years later, it is often the landowner’s best statutory footing.

In Vivekanand Padegal v. ACIT (ITAT Bangalore, ITA 923/Bang/2018, assessment year 2013-14, 3 September 2020), the first year of the section, the owner was to receive 50 per cent of the super built-up area of a commercial complex under an agreement of 5 December 2012, and offered the gain on the guidance value of the land, Rs 3,200 a square foot, at the agreement date; the Assessing Officer took the developer’s letter cost of Rs 1,575 a square foot. The Tribunal applied section 50D: “such cost of construction to be constructed in future cannot be determined in the year of transfer” (paragraph 6). The Revenue had argued that because a builder’s cost figure was available, the consideration was ascertainable and section 50D did not apply (paragraph 5), and lost.

The section values “the said asset”, which on its words is the asset transferred: the land or the undivided share given up, not the flats received. Padegal valued the land; L.K. Trust (paragraph 8.15) applied section 50D but to the guidance value of the constructed area received.

The cost of the land: 1 April 2001, the stamp duty cap and the share retained

The landowner deducts what the land cost him or, if he or a previous owner from whom he inherited held it before 1 April 2001, its fair market value on that date at his option, capped since assessment year 2021-22 at the stamp duty value on the same date.

The 2001 option and its cap. Section 55(2)(b)(i) defines cost, where the asset “became the property of the assessee before the 1st day of April, 2001”, as its cost “or the fair market value of the asset on the 1st day of April, 2001, at the option of the assessee”; sub-clause (ii) gives the same option to an heir, donee or coparcener on partition whose previous owner held the land before that date. The proviso, inserted by Act No. 12 of 2020 with effect from 1 April 2021, says that for land or building the 2001 fair market value “shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001”. For a joint development agreement this gives the year-of-transfer dispute in Part 1 one more stake: a landowner whose transfer fell in assessment year 2020-21 or earlier could use an uncapped 2001 valuation, while one whose certificate year under section 45(5A) is assessment year 2021-22 or later is capped. “Wherever available” lets the landowner argue that the cap does not apply where no 2001 stamp value can be found; the Revenue will say that an “assessable” value can always be derived.

Whose land, how much of it. Under an area-sharing agreement outside section 45(5A), where the landowner conveys an undivided share to the developer and keeps the share underlying his own flats, the land transferred is only the developer’s share. In K.S. Akhilesh Babu v. ACIT (ITAT Bangalore, ITA 962 to 965/Bang/2025, 28 November 2025), the co-owners of about 13 acres at Basavanpura gave 61.5 per cent of the land for 38.5 per cent of the built-up area as villas; of a total land cost of Rs 2,72,00,000, the Rs 1,67,28,000 attributable to the 61.5 per cent was deducted in the agreement year, and the Rs 1,04,72,000 attributable to the share retained was carried to the villas (paragraph 9). Under section 45(5A) the arithmetic is different, because the deemed full value is the stamp duty value of the owner’s “share, being land or building or both in the project”, which includes the land under his flats; on that footing the whole cost of the land is set against it, and worked examples (a) and (d) do so. No decision addresses the point. The Revenue’s textual argument is that section 48 deducts the cost of “the capital asset” transferred, the developer’s undivided share only; the landowner’s, that the deemed full value includes the land under his flats, and section 49(7) gives them no separate land cost to recover it later. Worked examples (a) and (d) take the landowner’s reading.

Transfer expenses. Section 48(i) deducts “expenditure incurred wholly and exclusively in connection with such transfer”: stamp duty and registration the owner bears, legal fees and brokerage. Compensation to a terminated earlier developer is the Gujarat example. In Dhara Jagdishchandra Patel v. CIT (ITA 1116/Ahd/2014, 3 May 2017), where Rs 3,81,58,013 paid under an arbitral award ending a development agreement was set against the gain on a later sale of the land, the Ahmedabad Tribunal set aside a section 263 revision only because the Assessing Officer had enquired (paragraphs 19 and 20), and on 11 January 2019 it dismissed the Revenue’s quantum appeal on that footing (ITA 3406/Ahd/2016), never on deductibility. The Gujarat High Court admitted the Revenue’s appeal on whether the agreement, its cancellation and the award were genuine (Tax Appeal 642 of 2019, 25 February 2020), and no decision on it was traced; the Revenue’s appeal on the revision itself was dismissed for non-prosecution, with liberty to revive, on 23 July 2026 (Tax Appeal 53 of 2020). If the payment is genuine, the Revenue will call it a cost of clearing title, not of the transfer. Under section 45(5A) such sums, though paid years earlier, are on the landowner’s reading deducted in the certificate year’s computation; no decision was found.

Cost of improvement in Gujarat: betterment, conversion and tenure premiums

A Gujarat landowner usually pays something to the State before land can be developed (betterment under a town planning scheme, a premium for conversion to non-agricultural use, a premium to convert new tenure to old), and the Gujarat authority treats such payments, when the owner bears them, as capital expenditure that improves the land.

The statute. For land held since before 1 April 2001, section 55(1)(b) counts as cost of improvement only “expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date”; anything paid before 2001 is absorbed in the 2001 valuation and cannot be added again. Expenditure deductible under another head is excluded. Levelling, fencing, borewells and approval fees qualify on the same words if proved, but they are the claims most often lost on evidence: the Hyderabad Tribunal rejected borewell, gate and levelling costs, claimed as cost of acquisition, for want of proof in Prathima Reddy (paragraphs 4 and 31), and the Ranchi Tribunal disallowed Rs 20,26,774 on unverifiable vouchers in Joginder Singh Kashyap (2026).

Betterment. In Mathurdas Mangaldas Parekh v. CIT (Gujarat High Court, 5 August 1980), the owner of about 27,467 square yards at Kocharab, Final Plot No. 314 of Ahmedabad Town Planning Scheme No. 20, had paid betterment charges of Rs 60,390 to the Corporation. The Tribunal had held them neither a transfer expense nor a cost of improvement; the High Court disagreed: “The assessee gained an enduring advantage by paying this amount of Rs. 60,390”, and the charges “are in the nature of capital expenditure and go to improve the value of the land”. The judgment binds the Ahmedabad Bench.

Conversion to non-agricultural use. The Ahmedabad Tribunal followed Mathurdas Mangaldas Parekh in Shri Vithalbhai Kalidas Patel HUF v. DCIT (ITA 303 and 324/Ahd/2017, assessment year 2013-14, 14 October 2019): two HUFs, each holding half of land at Sola sold to Nirvana Procon Pvt Ltd for Rs 10,71,00,000, claimed about Rs 2.69 crore each of conversion charges which the buyer, under the agreement, bore and paid; the Commissioner (Appeals) treated them as advances, and the Tribunal allowed them as the sellers’ cost of improvement (paragraphs 4 and 17) without discussing whether they were also consideration. In Shri Alpesh Navinbhai Barot v. ITO (ITA 927/Ahd/2023, 20 August 2025) the Tribunal remanded with a direction to allow “cost of acquisition and cost of improvement, if any”, on a claim that included an unclaimed conversion premium (paragraph 7), holding that “the Department must not derive advantage from ignorance of an assessee as to his rights” (paragraph 9).

Who paid matters. In a joint development agreement the developer often pays the conversion premium. The Revenue will then say the landowner incurred nothing and can claim nothing, the view of the Commissioner (Appeals) that the Tribunal reversed in Vithalbhai Kalidas Patel without discussing it. The Ahmedabad Tribunal has since treated conversion funded by a buyer as the buyer’s improvement: in Dhartivarsha Estate Holders Pvt. Ltd. v. ITO (ITA 2097/Ahd/2024, 2 September 2026), a buyer’s section 56(2)(x) case, it held that “the cost of improvement has been borne by the prospective purchaser and not the seller”, so the uplift in stamp value from conversion “has been generated by the buyers investment” (paragraph 6.4). That is the landowner’s argument for keeping a developer-funded uplift out of his own consideration, though it sits uneasily with Vithalbhai Kalidas Patel, which gave a buyer-paid charge to the seller as cost. The consistent course where the developer pays a premium that is the owner’s statutory liability is either to treat it as part of the owner’s consideration and also as his cost of improvement (which nets to nil before indexation, but not after it, and changes the 2001 boundary), or to exclude it from both; the agreement should say which.

New tenure. Whether the premium to convert new-tenure land to old tenure is cost of improvement has not been decided on contest. The Commissioner (Appeals) allowed it in Subhashbhai Premaji Bhati v. ITO, and the Ahmedabad Tribunal remanded the whole computation on procedure (ITA 1870 and 1962/Ahd/2017, 6 December 2023, paragraph 17). The owner’s argument is Mathurdas Mangaldas Parekh’s reasoning: the premium turns a restricted, inalienable holding into a freely transferable one, an alteration of the capital asset. The Revenue’s is that “additions or alterations to the capital asset” connote an improvement of the land, not of the title, so that the premium is at most a cost of acquiring the old-tenure interest or a transfer expense. The Ahmedabad cases on buyer-paid tenure premiums, and new-tenure land generally, are in Part 4.

Indexation and the 23 July 2024 regime: who keeps the 20 per cent comparison

For any long-term transfer on or after 23 July 2024 the rate is 12.5 per cent without indexation, and only a resident individual or Hindu undivided family transferring land or building acquired before that date can cap its tax at what 20 per cent with indexation would have produced.

The text. The Finance (No. 2) Act, 2024 (Act No. 15 of 2024) confined the indexation proviso to section 48 to a transfer “(which takes place before the 23rd day of July, 2024)”, with retrospective effect from that date. Section 112(1)(a), substituted by the same Act, taxes a resident individual’s or Hindu undivided family’s long-term gain “(A) at the rate of twenty per cent for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024”. The second proviso adds: “in the case of transfer of a long-term capital asset, being land or building or both, which is acquired before the 23rd day of July, 2024, where the income-tax computed under item (B) exceeds the income-tax computed in accordance with the provisions of this Act, as they stood immediately before their amendment by the Finance (No. 2) Act, 2024, such excess shall be ignored”. Clauses (b) (a domestic company), (c) (a non-resident other than a company, or a foreign company) and (d) (any other resident) carry the same 20 and 12.5 per cent split, but no comparison.

Who gets it. Only a resident individual or Hindu undivided family. A non-resident individual landowner, a company, a firm or LLP, a trust assessed on its own account, an association of persons and a society all pay 12.5 per cent without indexation on a transfer on or after 23 July 2024, and 20 per cent with indexation on one before it. (A specific trust whose beneficiaries are resident individuals may argue for their treatment under section 161; Part 4 deals with it. A discretionary trust charged at the maximum marginal rate under section 164 faces a dispute whether that rate displaces the section 112 rate; Part 4 argues it.) The position of an heir, donee or coparcener who received the land on or after 23 July 2024 from a previous owner who held it before that date is unsettled: he says section 49(1) and Explanation 1(i)(b) to section 2(42A) give him the previous owner’s cost and holding, so the land was acquired when the previous owner acquired it; the Revenue, that the proviso asks when the transferor “acquired” it, and that Parliament tacked cost and holding expressly but not this. No decision or Board statement was found.

When it helps. The comparison saves tax only where indexation wipes out more of the gain than the lower rate does: typically land bought in the last twenty years at a price not far below its present value. The comparison must be run after any exemption, because an exemption can reverse which computation is lower; the landowner will say the proviso’s reference to tax computed under the provisions “as they stood” requires sections 54 and 54F to be applied inside each computation; the Revenue may say the exemption is computed once and only the tax compared. No decision or Board statement on the point was found, and worked example (d) takes the landowner’s reading.

Section 45(5A) and the 23 July 2024 date: agreement or certificate?

Where a registered agreement and possession came before 23 July 2024 and the completion certificate after, the statute does not say whether the transfer “takes place” at the agreement or at the certificate for the rate and indexation rules, and no decision on the point was found.

Two readings are possible; a hybrid (the rate by the agreement, indexation to the certificate year) is excluded because the rate in section 112(1)(a)(ii) and the indexation proviso turn on when the transfer “takes place”, and the definition of indexed cost on “the year in which the asset is transferred”: all three refer to the same transfer.

1. The certificate date governs. Section 45(5A) moves the charge to the certificate year and fixes value at the certificate date, so the whole of section 48, including indexation, is applied as at that date. The 12.5 per cent rate applies, with the resident individual’s comparison because the land was “acquired before the 23rd day of July, 2024”, indexed to the certificate year. This is the Department explainer’s approach, and for the Revenue the logic is that a gain cannot be computed at one date’s value and another date’s index.
2. The agreement date governs. Section 45(5A) deems the year of charge and the full value; it does not deem when the transfer “takes place”. The rate in section 112(1)(a)(ii) and the indexation proviso turn on that fact, which is the date of the registered agreement and possession under section 2(47)(v). If that date is before 23 July 2024, 20 per cent with indexation applies outright, but indexed only to the year of the agreement.

For a resident individual the first reading is usually the cheaper, because the certificate-year index is higher and the comparison gives him the better of the two computations; worked example (a) shows reading 1 at Rs 41,87,500 against Rs 55,45,000 on reading 2. The Revenue’s best point is consistency: the date on which the transfer “takes place” cannot be the agreement for one computation and the certificate for another.

The cost of the flats received under section 45(5A)

Under section 45(5A) the flats cost the landowner exactly what he was taxed on: section 49(7) makes the cost of his share “the amount which is deemed as full value of consideration in that sub-section”, which is the stamp duty value on the certificate date as increased by the money consideration.

The cash is part of the cost. On the text the cheque received at signing goes into the flats’ cost. The Revenue may argue that money already received bought nothing in the flats and confine their cost to stamp duty value, Rs 80,00,000 each; the words “the amount which is deemed as full value of consideration” support the landowner, but the point has not been tested.

How to divide it. The section gives a cost for the “share in the project”, not for each flat. Apportionment by stamp duty value on the certificate date is the natural method and is the one used here; it should be applied consistently across the flats, and parking or club rights forming part of the share should take their portion.

Extra area the owner pays for. Where the owner buys extra area from the developer, or pays towards building his own share, the stamp duty value of “his share” includes that area and section 45(5A) allows no deduction. The owner argues that only area received for the land is its consideration; the Revenue, that the sub-section values the whole share and his remedy is cost. The safer computation adds the payment to that area’s cost on a later sale, since section 49(7) does not say the deemed value is the only cost. No decision was traced; the developer’s side is in Part 5.

The 2025 Act gap. The counterpart is serial 20 of the Table in section 73(1): column B, “Capital asset, being share in the project, in the form of land or building, or both, under section 67(14), not being a capital asset referred to in section 67(16)”; column C, “The amount deemed as full value of consideration under section 67(14)”. A landowner whose certificate issued before 1 April 2026, whose gain was therefore charged under the 1961 section, and who sells a flat after that date, finds no entry for his cost. The only reference to the 1961 Act anywhere in section 73 is serial 19, which names a clause of section 10(37A) of the 1961 Act; the Revenue will say the draftsman named the old Act where he meant to and did not do so in serial 20, so that cost falls to the general rule. The landowner will rely on section 536(2)(a) (nothing affects “the previous operation of the repealed Income-tax Act … or anything duly done or suffered thereunder”) and section 536(2)(b) (no effect on “any right, privilege, obligation or liability acquired, accrued or incurred” under it), on section 6 of the General Clauses Act applied by section 536(4), and on the principle that a reading taxing the same stamp duty value twice should be avoided where the words allow. The Board’s July 2026 frequently asked questions on section 536 do not address it.

The cost of flats received outside section 45(5A)

Outside section 45(5A) there is no statutory cost rule for the flats; the Tribunal decisions read treat them as acquired in exchange, at a cost equal to the value at which the land given up was taxed, plus the original cost of any undivided land share the owner kept.

The two-part cost. The clearest statement is K.S. Akhilesh Babu (ITAT Bangalore, 28 November 2025). For assessment year 2007-08 the Assessing Officer had valued the owners’ 1,83,500 square feet of villas at Rs 760 a square foot, Rs 13,94,60,000, as consideration for the 61.5 per cent of land given up. When four villas were sold in assessment year 2021-22 for Rs 8,96,22,061, the authorities allowed as cost the Rs 760 a square foot and, for the land element, only Rs 45.91 a square foot, the land cost already allowed at the agreement stage spread over the whole area. The Tribunal held that limiting cost to what had been claimed when the agreement was taxed was “completely incorrect”, and allowed the retained land cost of Rs 1,04,72,000 over the saleable area: “the cost of land per sq.ft. should be 95.26 per sq.ft. (1,04,72,000/1,09,924)” (paragraph 9).

In Madhu Kumar Patel v. ADIT (International Taxation) (ITAT Hyderabad, ITA 395/Hyd/2022, assessment year 2015-16, 26 December 2022), a United Kingdom resident had been taxed in assessment year 2012-13 on Rs 6,77,58,600, his 35 per cent of a project cost, as consideration for land at Mansoorabad; when he sold 23 of his 52 flats, the Dispute Resolution Panel apportioned that figure by area to give them a cost of Rs 2,97,52,875 (paragraph 18), and the Tribunal directed that it be indexed (paragraph 21). In Olivia Apparels Pvt. Ltd. v. DCIT (ITAT Bangalore, 14 February 2023), a company landowner taxed on Rs 3 crore for land at Bellandur was allowed that figure as the cost of the flats it later settled (paragraphs 32 and 38). In DCIT v. R. Muniraju (HUF) (ITAT Bangalore, ITA 54/Bang/2020 and CO 2/Bang/2022, 13 October 2022) the Tribunal, adopting guideline value as the consideration, reasoned that there was “no loss to the revenue” because on the later sale of the flats “the guideline value would be considered as the cost of acquisition” (paragraph 28); no such sale was before it.

The Revenue’s arguments. The first is that a cost based on the exchange presupposes that the exchange was taxed; where the landowner offered nothing in the year of transfer, or that year is now beyond reopening, the flats have only the original cost of the land. The second, from assessment year 2024-25, is section 55(2)(a), which gives a nil cost to “any other right” not acquired by purchase, if the landowner sells his entitlement before the flats exist. The landowner’s answer to the first is that section 48 deducts “the cost of acquisition of the asset”, which for an asset acquired in exchange is the value of what was given for it, whether or not the earlier year was assessed; the tenant cases on the live site (Sarjit Desai and Murtuza Kothari, set out in Part 1 of the redevelopment members’ series) say the same. To the second he answers that an exchange is a purchase paid for in kind, a reading no decision has yet adopted.

The holding period of the flats, and the short-term trap

The flats received do not inherit the land’s holding period, so a landowner who sells soon after possession may find his gain short-term, taxed at slab rates and outside sections 54, 54F and 54EC.

The statute. Section 2(42A) makes land or building short-term if held “for not more than twenty-four months immediately preceding the date of its transfer” (twenty-four months for land or building since assessment year 2018-19). Explanation 1(i)(b) adds the previous owner’s period only for an asset that “becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49”: gift, will, inheritance, partition and the like. Section 49(7) is not in section 49(1). So there is no statutory tacking from the land to the flats, under either Act; section 2(101)(c) of the 2025 Act follows the same pattern.

Two candidate dates.

• The certificate date. Under section 45(5A) the cost is fixed at the certificate date, and the Revenue’s natural reading is that an asset whose cost the statute measures on that date was acquired then. A flat sold within twenty-four months of the certificate is short-term on this view.
• The agreement or allotment date. A registered agreement identifying the owner’s share gives him a right in it from that date, which ripens into the flat. The Punjab and Haryana High Court in Mrs. Madhu Kaul v. CIT (ITA 89 of 1999, 17 January 2014), on a Chandigarh flat allotted in 1986 and identified in 1988, held that “identification of a particular flat and delivery of possession are consequential acts” and that “The mere fact that possession was delivered later, does not detract from the fact”. The Surat Tribunal in Jagdishkumar Chhotubhai Gandhi v. ITO (International Taxation) (ITA 245/SRT/2024, 29 September 2026, paragraphs 18 and 19) counted a builder-buyer’s holding from a 2011 allotment, not the 2016 conveyance. Both are buyer cases; no decision on a section 45(5A) share was found.

What the Tribunals have done outside section 45(5A). They have counted from the agreement or the allotment under it. In Olivia Apparels the Commissioner (Appeals) split the company’s gain into long-term and short-term by counting from the agreement date, and the Tribunal, dismissing the Revenue’s appeal, left that undisturbed without separate discussion (paragraphs 37 to 39). In Madhu Kumar Patel the Tribunal treated flats “allotted to the assessee as per the JDA on 13.01.2012” and sold more than three years later as outside section 54F(3) (paragraph 26). No decision was found counting a landowner’s holding only from possession.

Selling the share before the certificate, and selling the flats after

A landowner who transfers his share in the project on or before the completion certificate loses section 45(5A) for that share, and is taxed under the general law in the year of that sale; a landowner who sells completed flats is taxed on each sale like any other seller, with section 50C applying to the price.

The proviso. Section 45(5A) “shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion”, and “the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration”. For the computation, three things follow. First, section 50C can apply to the sale of the share, subject to the question whether an unbuilt share is “land or building” (the Vidarbha Veneer and Yasin Moosa Godil arguments above). Second, section 49(7) does not give the share a cost, because it expressly excludes “the capital asset referred to in the proviso”. Third, the proviso itself fixes the year: “the capital gains shall be deemed to be the income of the previous year in which such transfer takes place”, the year the share is sold (section 67(16)(a) of the 2025 Act is the same). The Revenue may argue that the land passed under section 2(47)(v) in the agreement year and the deeming reaches only the gain on the share; the landowner, that the proviso moves “the capital gains” under the specified agreement as a whole into the year of sale. No decision on the proviso’s computation was found.

Selling completed flats. Section 50C applies to the price, with the 110 per cent band: in Akhilesh Babu a villa received under a joint development agreement and sold for Rs 2,18,29,631 against a guidance value of Rs 2,32,54,118 was within 110 per cent, and the actual price stood (paragraph 9.1).

Section 54 or section 54F, and the flats as the new asset

A landowner who gives land for development claims under section 54F, which relieves a gain on “any long-term capital asset, not being a residential house”; section 54 is available only where what he transferred was a residential house.

Which section. Where an old bungalow stands on the plot, the owner who hands it over standing may argue section 54 for the house and the land appurtenant to it (the statute’s words are “buildings or lands appurtenant thereto”), but an owner who demolishes it first cannot: the Karnataka High Court in Ved Prakash Rakhra held that owners who demolished their residential building and handed over vacant land “are not entitled to claim benefit under section 54 of the Act. At the most they are entitled to benefit under Section 54F” (paragraph 10).

Can the flats received be the new asset? Section 54F requires that the assessee has, within one year before or two years after the transfer, “purchased”, or within three years after it “constructed”, “one residential house in India”. It does not require that the house be paid for in money or bought from a stranger. In every reported case read for years before assessment year 2015-16 where the assessment order is described, the Assessing Officer or the first appellate authority allowed at least one flat received under the agreement as the new asset: Gita Duggal (Delhi High Court, 21 February 2013), V.R. Karpagam and C. Anuradha, and the Hyderabad Tribunal’s order in Koushik Routhu (below), where section 54F on the flats received had been allowed for the transfer year. The Gujarat High Court went further in CIT v. Gaurang S. Desai (Tax Appeal 1174 of 2007, 14 July 2008): members of a plot-holders’ society who each received one flat under a 1995 development agreement had been allowed section 54F, and the Court declined to frame a question, recording with approval findings that the members “got constructed flat within two years of the transfer” and that “the flats were purchased within two years of the transfer” (paragraphs 8 and 9). An admission-stage order using both words, it does not decide purchase or construction; the landowner will say it binds the Ahmedabad Bench against the argument that flats received as consideration cannot be the new asset at all, and the Revenue that the only points argued there were the missing books and the late claim (paragraph 7), so the investment question was never raised. The Revenue’s argument at full strength is that the flats are the consideration, so the landowner invests nothing: Hilla J.B. Wadia’s test was “domain over the flat and investment in it”, and Rasiklal M. Parikh distinguished Hilla because the assessee there had “made an investment therein” (paragraph 33). If consideration in kind could be its own reinvestment, every area-sharing landowner would be exempt automatically. The landowner’s answer is that giving land is giving value, that an exchange is a mode of acquisition for value, and that no High Court has accepted the “no investment” argument against a landowner. The Mumbai Tribunal in ITO v. Jawahar N. Ghia and others (AOP) (ITA 4665/Mum/2012, 19 November 2013) allowed sections 54 and 54F on area received under a development agreement, holding as cited that “purchase” includes payment in kind (paragraph 5.1).

Purchased or constructed. The classification matters because a landowner’s flats are almost never complete within two years of a transfer dated at the agreement. He needs “construction”. For it: Circulars 471 (15 October 1986) and 672 (16 December 1993), which treat allotment under schemes of the Delhi Development Authority and of “co-operative societies and other institutions” as construction (the circulars’ own text was read here only as reproduced in later orders); CIT v. Mrs. Hilla J.B. Wadia (Bombay High Court, 2 March 1993, [1995] 216 ITR 376), where the owner had conveyed her Worli property to a society and was allotted a flat in its new building (not a development agreement case); and the Tribunal’s reasoning in R.J.V. Kaiwar (Madras), quoted by the High Court at paragraph 2 of PCIT v. Shri R.J.V. Kaiwar (Tax Case (Appeal) 130 of 2019, 25 February 2019), that the land share “would be deemed to be invested and deposited with developer” “for construction”. Those are the Tribunal’s words; the High Court dismissed the appeal on facts. Against: Rasiklal (paragraph 34), that a developer’s allotment confers no title until a registered agreement and is outside Circular 672. A landowner whose share is identified in a registered agreement is better placed than Rasiklal’s tenant, and his title to the land under his flats never left him. The delay cases (Sardarmal Kothari, Sangram J. Patel and Dhillkushi Gurmurti for the assessee; Asodariya Gordhanbhai and Hiteshbhai Bagdai against) are set out in Part 3 of the redevelopment members’ series; and the Madras High Court in G. Chinnadurai v. ITO (29 August 2016, paragraph 7, a single judge on a writ, for a buyer who had paid for five flats) held that if the money was invested within the time limit the exemption “cannot be denied on the ground that construction has not been completed”.

The windows under section 45(5A). The gain is charged in the certificate year, but section 54F’s windows run from “the date on which the transfer took place”. The Revenue will say that section 45(5A) moves only the year of charge, so the windows run from the agreement and a flat completed more than three years later fails. The landowner will say that reading denies relief in every project longer than three years, defeating a beneficial section, and that the flat is constructed when completed, at the certificate. If he takes the certificate as the date of transfer, a complete flat is not constructed after it (Shantaben P. Gandhi, Gujarat High Court, 1980), and he must say it was “purchased” within one year before. No decision was found on this interaction.

The other flats from the same project: the section 54F proviso

A landowner who receives several flats and designates one as his new asset faces the most important undecided exemption point for Gujarat plot owners: whether the others, completed within three years of the transfer, bar section 54F altogether.

The proviso to section 54F(1) denies the exemption where the assessee “(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”“. Section 54F(2) separately taxes the exemption already allowed in the year another house, whose income is chargeable under the head “Income from house property”, is purchased within two years or constructed within three years. The bar is owning “more than one” other house; a landowner may own one.

Clause (iii). If the landowner says his designated flat was “constructed” within three years, he can hardly deny that the other flats from the same building were constructed too. If they are completed within three years of the transfer, the Revenue will say clause (iii) bars the claim, and section 54F(2) recovers anything allowed. The landowner’s arguments are that the other flats are not houses he “constructs” with other money, but part of the same consideration for the same transfer, and that the proviso is aimed at an assessee who uses the occasion to acquire more houses; that a flat not yet demarcated or possessed is not constructed by him (Adarsh Kumar v. DCIT, ITAT Delhi, 24 May 2018, on allotted flats without possession, discussed in Part 3 of the redevelopment members’ series); and that if completion falls beyond three years, clause (iii) and section 54F(2) do not apply on their terms. The trap is that the last argument fights the one he needs for his own flat to be “constructed” within three years.

Clause (i). On the agreement-date view, the other flats do not exist on the date of transfer, and the Ahmedabad Tribunal in DCIT v. Aditya Harshvadan Mangaldas (11 December 2025) did not count villas under construction. On the certificate-date view the landowner owns six finished flats on the date of transfer, and clause (i) bars him.

Authority. The closest order is Ramanujam Venkatesh v. ITO (ITAT Chennai, ITA 1467/Chny/2017, assessment year 2014-15, 17 December 2018), where the Assessing Officer treated four flats under two later agreements as a breach of the condition against acquiring another house, and the Tribunal held that the transfer took place under the addendum of 1 November 2014 fixing the owner’s share at five flats, and on that footing allowed section 54F on all five under the “a residential house” wording then in force (paragraph 6), without applying the proviso. No decision for assessment year 2015-16 onwards was found; the point has been missed rather than decided. In Kesavan Vanithamani v. ITO (ITAT Chennai, ITA 2451 and 2452/Chny/2025, 10 February 2026) a landowner entitled to 23 flats under a December 2015 agreement claimed section 54F on a separate house; the Revenue invoked clause (i) only on her other properties, and lost (paragraph 5), without asking whether the 23 flats were houses she owned or was constructing. She had sold her whole allotted share to the developer for Rs 8,16,50,000 on 18 April 2017, before completion. Worked example (d) shows the stake: on a Rs 14 crore deal, tax of Rs 1,39,28,571 with one flat exempted becomes Rs 1,62,50,000 if clause (iii) is read against her.

One house or several, the two-house option and the Rs 10 crore cap

From assessment year 2015-16 both sections require “one residential house in India”; before that, the High Courts, including those that considered flats received under development agreements, allowed several units as “a residential house”.

Before 2015-16. CIT v. Smt. V.R. Karpagam (Madras High Court, Tax Case (Appeal) 301 of 2014, 18 August 2014) allowed five flats with the same door number received for a Coimbatore plot (“a residential house would include multiple flats/residential units”, paragraph 10); CIT v. Gumanmal Jain (Madras High Court, 3 March 2017) allowed nine flats in different blocks at one address (paragraph 7(iv)); Smt. C. Anuradha v. ITO (Madras High Court, 14 October 2024) reaffirmed the line; CIT v. K.G. Rukminiamma (Karnataka High Court, 27 August 2010) is to the same effect; and in Krishnagopal B. Nangpal v. DCIT (Income Tax Appeal 569 of 2003, 22 July 2025) the Bombay High Court held that “a residential house” was plural before the amendment, which was conscious (“The word ‘a’ is consciously replaced by the legislature by the word ‘one’”, paragraph 13), displacing the Special Bench in Sushila M. Jhaveri.

From 2015-16. The landowner’s best argument for several flats is the caveat in Mrs. Kamla Ajmera v. PCIT (Delhi High Court, 3 December 2024, paragraph 39): “a” denotes one singular residence, unless “the floors or houses are so constructed as to be used as one singular unit or capable of being used as such”. Adjoining flats combined into one residence before possession can qualify; flats scattered through a tower cannot. The only Bench decision traced on several flats received under a development agreement after the amendment went against the owner entirely. In Joginder Singh Kashyap v. ITO (ITAT Ranchi, ITA 28/RAN/2026, 25 September 2026) the owner claimed exemption on all five flats received under a 2012 agreement; the Tribunal adopted the Commissioner (Appeals)’ finding that “five separate residential flats” contravened the amended wording and that non-fulfilment “ipso facto disqualifies” the claim, so not even one flat was allowed. The claim was made under section 54; the order does not say whether a house stood on the plot, and it recorded but did not decide the assessee’s ground that the notice had proposed a section 54F disallowance. The landowner’s answer is that the section denies only the excess over one house; the safe course is to designate one flat, or one combined residence, and no more.

The two-house option. Section 54 alone, from assessment year 2020-21 (the Finance Act, 2019), lets an assessee whose gain does not exceed Rs 2 crore “purchase or construct two residential houses in India”, once in a lifetime. It is available to a landowner only if he transferred a residential house.

The Rs 10 crore cap. The Finance Act, 2023 (Act No. 8 of 2023) provided, from assessment year 2024-25, that “where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account”, and capped the deposit in the Capital Gains Accounts Scheme at Rs 10 crore of gain (section 54) or net consideration (section 54F). Under section 45(5A) the flats’ cost is their section 49(7) figure, which on a large Bodakdev or Vesu plot easily exceeds Rs 10 crore.

The Capital Gains Accounts Scheme deposit when the consideration is flats

Sections 54(2) and 54F(4) require any amount not used by the date of the return to be deposited in the Capital Gains Accounts Scheme “before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139]”; whether that deposit is mandatory where the money is in fact invested later divides the High Courts.

Mandatory. The Bombay High Court in Humayun Suleman Merchant v. CCIT (Income Tax Appeal 545 of 2002, 18 August 2016; the judgment itself was not located, and its operative sub-paragraphs 6(i) to 6(x) are read as reproduced by the Mumbai Tribunal in Mukesh Babulal Shah, 22 April 2026) held that the amount not utilised “has to be deposited before the due date of filing return of Income under Section 139(1)” (sub-paragraph 6(i)), while protecting amounts actually used before the return was filed. Rasiklal M. Parikh followed it (paragraphs 31 and 37), a ground independent of its title holding (paragraph 34), so the assessee there lost on both. The Madras High Court Division Bench in CIT v. Venkata Dilip Kumar (W.A. 414 of 2020, 15 October 2020), on a joint development agreement, said that it was of the prima facie view that Humayun Merchant “appears to reflect the correct position of law”, vacated a single judge’s “directory” finding and left the question open (paragraph 19).

Excused where invested. CIT v. Jagtar Singh Chawla (Punjab and Haryana High Court, ITA 71 of 2012, 20 March 2013) allowed section 54F where a house was bought within the extended return period, before the due date under section 139(4). CIT v. K. Ramachandra Rao (Karnataka High Court, ITA 47 of 2014, 14 July 2014), where the consideration was invested in construction within three years, held that sub-section (4) “has no application to a case where the assessee invests the sale consideration” (paragraph 4); Humayun Merchant, as reproduced, treated it as given sub silentio. The Ahmedabad Tribunal took the section 139(4) line, and followed K. Ramachandra Rao through a coordinate order, in Shrawankumar G. Jain v. ITO (ITA 695/Ahd/2016, 3 October 2018), and the Rajkot Tribunal excused deposit in Chandrakant H. Kakkad v. ITO (ITA 126/Rjt/2017, 21 September 2022), which did not discuss the Humayun judgment relied on by the Commissioner (Appeals); Rasiklal was cited in neither. The Karnataka Division Bench in ITO v. Narayan Ravi Prakash (27 January 2026) declined to examine the point and said its single judge’s reading “shall not operate as a binding precedent” (paragraph 11).

The landowner’s twist. A landowner who claims section 54F on flats not complete by the return date for the year of transfer has, on the Revenue’s reading, unutilised net consideration, but no cash to deposit, because his consideration is the flats. His answers are the Tribunal’s reasoning in R.J.V. Kaiwar, that the land share is invested with the developer on transfer, and, under section 45(5A), that by the certificate year’s return date the flat exists and is utilised. No decision deals with either.

Section 54EC on cash, and section 54B

Section 54EC exempts a gain on “a long-term capital asset, being land or building or both” (words in force from assessment year 2019-20) invested within six months after the transfer in specified bonds, up to Rs 50 lakh across the year of transfer and the next; unlike sections 54 and 54F it is open to companies, firms, trusts and associations of persons.

Two timing questions are open. First, where cash arrives in instalments, the Ahmedabad Tribunal in Dinesh Bhailalbhai Patel v. DCIT (ITA 3650 to 3652/Ahd/2015, 22 December 2017), on a development agreement for a final plot at Anand, allowed bonds bought within six months of the last instalment on “a liberal interpretation” “in peculiar facts herein” (paragraph 3). Second, under section 45(5A) the gain is charged in the certificate year, but the six months run “after the date of such transfer”; if the transfer is the agreement, they may expire years before the gain is chargeable. No decision was found; the safe course is to invest within six months of receiving cash at signing. A lump sum for development rights, the owner keeping FSI for his own flats, is capital gains even where section 50C does not apply: “Grant of development rights is sufficient to attract the capital gains provisions” (Late Dorothy Pereira v. ITO, ITAT Mumbai, ITA 7107/Mum/2025, 4 June 2026, paragraph 37), and section 54EC was allowed for assessment year 2011-12 (paragraph 38). From assessment year 2019-20 the original asset must be land or building, and whether development rights qualify is undecided: the owner relies on the Explanation to section 269UA(d)(i), the Revenue on any argument he made, to escape section 50C, that he transferred mere development rights.

Section 54B, for agricultural land, rarely survives the conversion to non-agricultural use that precedes a Gujarat joint development agreement; it is decided in Part 4.

Clawbacks when the new flat is sold

A landowner who exempts his gain against a flat and sells that flat within three years of its purchase or construction loses the exemption: section 54F(3) deems the exempted gain income of the year of sale, and section 54(1) reduces the flat’s cost by the gain.

The three years run “from the date of its purchase or, as the case may be, its construction”. On the construction view that is completion, not the agreement. In Bachupally Laxmi and Koushik Routhu v. ITO (ITAT Hyderabad, ITA 571 to 573/Hyd/2020, 27 May 2021), section 54F had been allowed for assessment year 2010-11 on flats received under a 2009 agreement and handed over in May 2012; when the flats were sold in 2013-14 and 2014-15 the Assessing Officer invoked section 54F(3) and called the gain short-term. A single Member held for the owners on consistency with co-owners’ accepted orders, which had treated flats identified in the agreement as acquired on its date (paragraph 5). Where the exemption was claimed under the 1961 Act and the flat is sold on or after 1 April 2026, section 536(2)(h) of the 2025 Act, as substituted by Act No. 4 of 2026, preserves the section 54F(3) charge; whether it also preserves the section 54(1) cost reduction, which is not a “sum” included in income, is argued in Part 3 of the redevelopment members’ series.

Worked example (a): an individual under section 45(5A), from the land to the sale of the flats

An individual within section 45(5A) is taxed on the land once, in the certificate year, and on each flat only for its rise in value after that, because the deemed full value becomes the flats’ cost under section 49(7). The facts are illustrative. Mr A, a resident individual, bought an Ahmedabad plot in 1998 for Rs 12,00,000. Its fair market value on 1 April 2001 was Rs 30,00,000 and its stamp duty value then Rs 25,00,000, so his cost is Rs 25,00,000. He registers a specified agreement on 15 March 2023 for four flats and a cheque of Rs 40,00,000 on signing, from which the developer deducts Rs 4,00,000 under section 194-IC, and hands over possession the same day. The building use permission for the whole project, taken here as the completion certificate, issues on 10 September 2025, when the four flats’ stamp duty value is Rs 80,00,000 each. He claims no exemption. Tax is shown before surcharge and cess; the Cost Inflation Index figures are the Department’s (100 for 2001-02, 331 for 2022-23, 376 for 2025-26, 384 for 2026-27).

Table 1: the land, charged in the year of the certificate

Mr A, specified agreement of 15 March 2023, certificate of 10 September 2025	Transfer taken at the certificate (2025-26)	Transfer taken at the agreement (2022-23)
Stamp duty value of four flats on 10 September 2025	Rs 3,20,00,000	Rs 3,20,00,000
Add: cheque received on signing	Rs 40,00,000	Rs 40,00,000
Full value of consideration under section 45(5A)	Rs 3,60,00,000	Rs 3,60,00,000
Cost: 1 April 2001 value, capped at stamp duty value	Rs 25,00,000	Rs 25,00,000
Gain without indexation; tax at 12.5 per cent (A)	Rs 3,35,00,000; Rs 41,87,500	not applicable
Indexed cost	Rs 94,00,000 (index 376)	Rs 82,75,000 (index 331)
Gain with indexation; tax at 20 per cent (B)	Rs 2,66,00,000; Rs 53,20,000	Rs 2,77,25,000; Rs 55,45,000
Tax payable	Rs 41,87,500	Rs 55,45,000

Section 49(7) cost per flat: Rs 90,00,000; Revenue’s alternative (stamp duty value only): Rs 80,00,000. Tax deducted under section 194-IC: Rs 4,00,000.

Table 2: flat 1 sold on 15 March 2027 for Rs 95,00,000

View taken of the flat	Cost	Gain before indexation	Rate	Tax
1. Held from the certificate: short-term; section 49(7) cost	Rs 90,00,000	Rs 5,00,000	slab, taken at 30 per cent	Rs 1,50,000
2. Held from the certificate: short-term; Revenue’s cost	Rs 80,00,000	Rs 15,00,000	slab, taken at 30 per cent	Rs 4,50,000
3. Held from the agreement: long-term; cost indexed from 2022-23	Rs 90,00,000 (indexed Rs 1,04,41,088)	Rs 5,00,000	lower of Rs 62,500 and Rs 0	Rs 0

On the certificate reading the gain is charged in assessment year 2026-27 and the 12.5 per cent computation is cheaper; the credit for the Rs 4,00,000 deducted in 2022-23 follows the income to that year under rule 37BA(3)(i) (Part 6 deals with the mismatch). Mr A also sells in tax year 2026-27, under the 2025 Act, while his certificate issued under the 1961 Act; his Rs 90,00,000 cost therefore depends on reading section 536 to fill the gap in serial 20 of the Table in section 73(1).

Worked example (c): land acquired before 23 July 2024, with and without the comparison

A resident individual who acquired land before 23 July 2024 and transfers it after that date pays the lower of 12.5 per cent without indexation and 20 per cent with it, and which limb wins depends on how long the land was held and how fast its value rose. The facts are illustrative. Plot X was held before 2001 and its capped 1 April 2001 value is Rs 10,00,000; plot Y was bought in 2006-07 for Rs 60,00,000. The full value of consideration is taken as Rs 3,00,00,000 and Rs 2,40,00,000, transferred in 2025-26. The Cost Inflation Index figures are the Department’s: 100 (2001-02), 122 (2006-07), 331 (2022-23), 363 (2024-25) and 376 (2025-26). Tax is shown before surcharge and cess.

Table 1: transfer in 2025-26, after 23 July 2024

Plot	Full value	Cost	Gain and tax at 12.5 per cent, no indexation (A)	Indexed cost (index 376), gain and tax at 20 per cent (B)	Resident individual or HUF pays	Firm, LLP, company, trust, AOP or non-resident pays
Plot X (held before 2001; capped 1 April 2001 value)	Rs 3,00,00,000	Rs 10,00,000	Rs 2,90,00,000; Rs 36,25,000	Rs 37,60,000; Rs 2,62,40,000; Rs 52,48,000	Rs 36,25,000	Rs 36,25,000
Plot Y (bought in 2006-07)	Rs 2,40,00,000	Rs 60,00,000	Rs 1,80,00,000; Rs 22,50,000	Rs 1,84,91,803; Rs 55,08,197; Rs 11,01,639	Rs 11,01,639	Rs 22,50,000

Table 2: Plot Y, the same full value, and what the date of transfer does

Case	Rule	Indexed cost	Tax
Firm or LLP; possession under a registered agreement on 1 June 2024	20 per cent with indexation (transfer before 23 July 2024)	Rs 1,78,52,459 (index 363)	Rs 12,29,508
Firm or LLP; possession on 1 August 2024	12.5 per cent without indexation	not available	Rs 22,50,000
Individual under section 45(5A); transfer read as the 2022-23 agreement	20 per cent with indexation to 2022-23	Rs 1,62,78,689 (index 331)	Rs 15,44,262
Individual under section 45(5A); transfer read as the 2025-26 certificate	lower of 12.5 per cent and 20 per cent indexed	Rs 1,84,91,803 (index 376)	Rs 11,01,639

The comparison is worth Rs 11,48,361 to the individual who owns plot Y and nothing to the one who owns plot X, whose 2001 value is so low that indexation cannot catch up with the lower rate. For a firm, company or non-resident owning plot Y, two months’ difference in the date of possession costs Rs 10,20,492.

Worked example (d): section 54F on flats received, the Rs 10 crore cap and the other-house bar

Section 54F can exempt a landowner’s gain against one flat received, but the exemption is limited by the Rs 10 crore cap on cost and is lost altogether if she owns more than one other residential house on the date of transfer. Mrs D, a resident individual, has held a Bodakdev plot since before 2001; its capped 1 April 2001 value is Rs 1,00,00,000. She registers a specified agreement on 1 June 2022 for seven flats and Rs 1,40,00,000 by cheque. The certificate issues in 2025-26, when each flat’s stamp duty value is Rs 1,80,00,000. There are no transfer expenses, so net consideration equals full value. Section 54F is applied inside each computation under the second proviso to section 112(1)(a). Case 6 assumes the certificate (and so completion of the other flats) falls within three years of the agreement, and the proviso’s clause (a)(iii) is read against her. Tax is shown before surcharge and cess.

Full value Rs 14,00,00,000; net consideration Rs 14,00,00,000; gain without indexation Rs 13,00,00,000; indexed gain Rs 10,24,00,000 (index 376); section 49(7) cost per flat Rs 2,00,00,000.

Case	Cost of new asset counted	Exempt gain: unindexed; indexed computation	Tax at 12.5 per cent (A); at 20 per cent indexed (B)	Tax payable (lower)
1. No exemption claimed	Rs 0	Rs 0; Rs 0	Rs 1,62,50,000; Rs 2,04,80,000	Rs 1,62,50,000
2. One flat designated as the new asset; other flats not treated as a bar	Rs 2,00,00,000	Rs 1,85,71,429; Rs 1,46,28,571	Rs 1,39,28,571; Rs 1,75,54,286	Rs 1,39,28,571
3. Four adjoining flats used as one unit designated	Rs 8,00,00,000	Rs 7,42,85,714; Rs 5,85,14,286	Rs 69,64,286; Rs 87,77,143	Rs 69,64,286
4. Six flats on two adjoining floors combined into one residence; cost capped at Rs 10 crore	Rs 10,00,00,000	Rs 9,28,57,143; Rs 7,31,42,857	Rs 46,42,857; Rs 58,51,429	Rs 46,42,857
5. As case 4, if there were no cap (for comparison)	Rs 12,00,00,000	Rs 11,14,28,571; Rs 8,77,71,429	Rs 23,21,429; Rs 29,25,714	Rs 23,21,429
6. Other flats completed within three years of the agreement: proviso, clause (a)(iii), read against her	Rs 0	Rs 0; Rs 0	Rs 1,62,50,000; Rs 2,04,80,000	Rs 1,62,50,000
7. She owned two other houses on the date of transfer: proviso, clause (a)(i)	Rs 0	Rs 0; Rs 0	Rs 1,62,50,000; Rs 2,04,80,000	Rs 1,62,50,000

Designating one flat saves Rs 23,21,429; designating a combined residence of four flats saves Rs 92,85,714, if Kamla Ajmera’s caveat is met. The cap bites only above Rs 10 crore of cost, here costing Rs 23,21,429. And the whole exemption depends on the unanswered question in case 6: a certificate on 5 May 2025 would put every flat within three years of the 1 June 2022 agreement, while one on 20 August 2025 would put the other flats outside clause (a)(iii) and, on the Revenue’s reading of the windows, the designated flat outside the three years it needs to qualify as constructed.

Gujarat: what the record shows

The Gujarat record on valuing and exempting a landowner’s gain is thin on the central questions and useful at the edges. No decision of the Gujarat High Court or the Ahmedabad, Surat or Rajkot Benches was found choosing between the developer’s cost and market value, deciding whether a landowner’s flats are purchased or constructed (Gaurang S. Desai, 2008, allowed section 54F on such flats without choosing), or applying the section 54F proviso to flats from the same project.

On value: Minal Urmil Shah (2025, development rights outside section 50C, as an additional reason), Kantibhai Tapubhai Savalia (2018, composite stamp values apportioned), Dilip Devjibhai Patel (2024, a Valuation Officer figure under a third of the jantri value) and Himmatbhai Dharamshibhai Sonani (2016, agreement-date provisos retrospective). On cost: Mathurdas Mangaldas Parekh (Gujarat High Court, 1980) on betterment, Vithalbhai Kalidas Patel HUF (2019) on conversion charges the buyer paid, and Dhartivarsha Estate Holders (2026) on buyer-funded conversion. On exemptions: Gaurang S. Desai (Gujarat High Court, 2008) on flats received as the new asset; Minal Nayan Shah (Gujarat High Court, Tax Appeal 141 of 2020, 1 September 2020), where a revision questioning section 54F on three units bought with development-agreement consideration stayed quashed; Shrawankumar G. Jain and Chandrakant H. Kakkad on the deposit; Dinesh Bhailalbhai Patel (2017) on section 54EC instalments; Aditya Harshvadan Mangaldas (2025) on houses under construction; and Shantaben P. Gandhi (Gujarat High Court, 1980) against a house completed before the transfer.

Open questions in Part 2, argued both ways

Nine questions on the landowner’s computation remain open, each set out with the authority on both sides.

1. Developer’s cost or market value outside section 45(5A). For the landowner: Ved Prakash Rakhra and Sarojini M. Kushe (Karnataka High Court), L.K. Trust, Sitha Mahalakshmi and Vivekanand Padegal; valuation at the transfer date. For the Revenue: the developer’s audited cost is a real figure, guidance value an administrative one; Prathima Reddy; Sarojini Kushe was a dismissal on facts. No Gujarat decision.

2. Section 50C on development rights. For the landowner: Minal Urmil Shah; Chandrashekar’s paragraph 11, as reproduced; until conveyance the developer holds a licence. For the Revenue: Vidarbha Veneer on land “held” by any mode; Sanjay Kumar Sanghi on an agreement registered as a sale; the Explanation to section 269UA(d)(i). Unresolved above the Tribunal in Gujarat.

3. Retrospective tolerance. For the landowner: Cheryl Maria Fernandes and Nabhiraj, coordinate Benches; Vummudi Amarendran’s curative reasoning. For the Revenue: stated commencement dates in 2018 and 2020; no High Court on the tolerance.

4. Agreement or certificate for the 23 July 2024 rules under section 45(5A). For the certificate: the sub-section values the gain at that date, and value and index must match; the Department’s explainer. For the agreement: the sub-section deems the year and value, not the date the transfer “takes place”. Untested.

5. Cash in the section 49(7) cost; the section 73 gap. For the landowner: the words “the amount which is deemed as full value”; section 536(2)(a) and (b). For the Revenue: cash bought nothing in the flats; serial 20 names only section 67(14). Untested. Whether the whole land cost, or only the developer’s fraction, is set against the section 45(5A) value is also untested.

6. Holding period of the flats. For the landowner: Madhu Kaul and the allotment line; Tribunal practice counting from the agreement. For the Revenue: a cost fixed at the certificate implies acquisition then; no statutory tacking. Undecided for a section 45(5A) share.

7. Flats received as the new asset; purchased or constructed. For the landowner: Gaurang S. Desai (Gujarat High Court, 2008) and departmental practice; Circulars 471 and 672; Hilla J.B. Wadia; R.J.V. Kaiwar’s Tribunal reasoning. For the Revenue: Hilla’s “investment” limb and Rasiklal paragraphs 33 and 34. No High Court decision on a landowner’s own flats.

8. The other flats and the section 54F proviso. For the Revenue: clause (iii) and section 54F(2) on their words. For the landowner: the other flats are part of the same consideration, not houses constructed with other money. No decision for years from 2015-16.

9. The deposit when the consideration is flats. For the Revenue: Humayun Merchant, Rasiklal, and Venkata Dilip Kumar (Division Bench: prima facie, Humayun “appears to reflect the correct position”, question left open). For the landowner: Jagtar Singh Chawla, K. Ramachandra Rao (sub silentio on the Bombay view) and the Ahmedabad and Rajkot Benches, without Rasiklal cited; investment on transfer. No decision on a landowner without cash.

A practitioner’s checklist for the landowner’s computation

Twelve steps protect the computation, each against a stated risk.

1. Value the consideration at the transfer date. Obtain a registered valuer’s report of the area receivable and its jantri value; otherwise the developer’s cost will be proposed and the landowner will be arguing without evidence.
2. Pay something by cheque at signing. Without it the agreement-date proviso to section 50C cannot lock the earlier stamp value.
3. Object to a high stamp value in writing. Ask for a reference under section 50C(2), or the stamp value stands without test.
4. Fix the 2001 value with its cap. Value on 1 April 2001 and check the 2001 jantri; an uncapped figure for a year from 2021-22 will be cut back.
5. Prove every premium and who paid it. Keep challans for betterment, conversion and tenure premiums and every levelling, fencing and approval bill, and make the agreement say whose liability they discharge; if the developer pays, the Revenue will deny the cost.
6. Choose one date and use it throughout. State in the return whether the transfer is taken at the agreement or the certificate; inconsistency invites the Revenue to take whichever date costs more.
7. Record the section 49(7) cost per flat. Apportion the deemed value, cash included, by stamp duty value; a flat sold later without a recorded cost will be costed at stamp value alone.
8. Hold for more than twenty-four months from the certificate before selling. A sale on or before the second anniversary is short-term on the Revenue’s reading, at slab rates and without exemption.
9. Designate the new asset deliberately. Choose one flat, or adjoining flats combined into one residence, and consider allotting other flats to a co-owner who owned his share of the land before signing (a later gift of flats or of the entitlement invites clubbing under section 64 and the Revenue’s substance argument); otherwise the proviso to section 54F may take the whole exemption.
10. Deposit or invest cash by the section 139(1) due date. A missed deposit loses the exemption on Bombay authority (Humayun Suleman Merchant; Rasiklal M. Parikh), and the Ahmedabad and Rajkot orders that excused it were decided without Rasiklal cited to them.
11. Invest section 54EC money within six months of each receipt, or the window may close before the certificate year.
12. Do not sell or assign the share before the certificate. The proviso to section 45(5A) removes the deferral and the section 49(7) cost.

Concordance: the Income-tax Act, 1961 and the Income-tax Act, 2025

Each 1961 provision used in this Part is paired below with its counterpart in the Income-tax Act, 2025.

Subject	Income-tax Act, 1961	Income-tax Act, 2025
Short-term capital asset; previous owner’s holding	s.2(42A) and Explanation 1(i)(b)	s.2(101)(a) and (c)(B)(I)
Transfer; part performance; enjoyment	s.2(47)(v), (vi)	s.2(109)(g), (f)
Stamp duty value (definition)	s.45(5A) Explanation (iii)	s.2(105)
Specified agreement; definitions; proviso	s.45(5A), Explanation, proviso	s.67(14), (15), (16)
Computation; indexed cost	s.48	s.72; s.72(2)
Cost of share in the project	s.49(7)	s.73(1), Table serial 20
Stamp duty value as full value; tolerance	s.50C	s.78
Fair market value where consideration indeterminate	s.50D	s.80
Cost of improvement; 1 April 2001 value and cap	s.55(1)(b); s.55(2)(b) and proviso	s.90(1); s.90(9)(a), (b), (10)
Rate on long-term gains; pre-23 July 2024 comparison	s.112(1)(a) and second proviso	s.197(1)(b), (3)
Exemption, residential house; two-house option; caps	s.54	s.82, including (5) to (8)
Exemption, agricultural land	s.54B	s.83
Exemption, bonds	s.54EC	s.85
Exemption, other assets; proviso; caps	s.54F	s.86, including (5) to (10)
Deduction under a specified agreement	s.194-IC	s.393(1), Table serial 3(ii)
Special Bench	s.255(3)	s.364(4)
Repeal and savings; sums deferred	(not applicable)	s.536(2)(a), (b), (h); s.536(4)

Each 2025 Act reference was checked against that Act’s text on the Income Tax Department’s website, with the Act field on the page read.

This note is general commentary on the law as at 24 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.