Hardship, corpus and rent in redevelopment: the member's tax

This is Part 2 of a four-part study of how income tax treats the existing occupants of a building that is redeveloped. Part 1 covers whether the member transfers anything, when, at what value, and the cost and holding period of the new flat. Part 2 covers the money the member receives while the building is down and the procedure that follows it. Part 3 covers cash exits, resale and sections 54, 54F and 54EC. Part 4 covers tenants, slum dwellers, shops, companies, non-residents and the society itself.

A member whose building goes into redevelopment usually receives four kinds of money before his new flat: a lump sum called hardship or displacement compensation (sometimes corpus), a monthly sum for alternate accommodation, a shifting allowance at each end, and, if the developer runs late, something for the delay. Neither the Income-tax Act, 1961 nor the Income-tax Act, 2025 mentions any of them. The Tribunal’s answer, given in well over thirty orders between 2012 and 2026, is that they are capital receipts. No Tribunal or High Court decision taxing them as income from other sources was traced; the one order that taxed them, Borkar, did so as capital gains, where the member had himself offered them so.

That answer is both stronger and weaker than it looks. The Revenue has tried at least eight theories, and every one has failed on the orders read. But several leading orders are thinner than their reputation: the one most cited, Delilah Raj Mansukhani, concerns the co-owner of a plot under a development agreement, not a society member; Kunnama V. Balakrishna was decided with no one appearing for the assessee; and the sentence that hardship compensation “ends up reducing the cost of acquisition” of the flat, which follows the member to the day he sells, began in 2012 as an unargued opinion to which counsel agreed and became, in Rajnikant D. Shroff in 2016, a Bench direction under section 51.

So the practical questions are what happens on a later sale, what to do about tax deducted on a sum that is not income, how to answer a notice generated by a registered agreement at nil consideration, and how to disclose the receipts so that penalty never becomes live.

In Gujarat, section 41A of the Gujarat Ownership Flats Act, 1973 and the 2019 Rules make every development agreement deal with these receipts. The decisions on them are Mumbai’s; no Ahmedabad, Surat or Rajkot Bench or Gujarat High Court decision on a Gujarat society member’s receipts was traced.

Key points

• Hardship compensation, corpus paid to a member, transit rent and shifting charges are capital receipts on every Tribunal decision traced that decided their character; the one order that taxed them, Borkar, did so as capital gains at the member’s own request.
• A lump sum expressly paid for “concurrence and consent” is still not consideration for a transfer (Pendharkar, paragraph 11, 25 March 2026).
• Transit rent keeps its character even if the member stays with relatives (Ajay Parasmal Kothari) or spends less than he receives (Walavalkar); only a 2017 remand (Bhimani) made actual use relevant.
• Whether the receipt reduces the cost of the flat on a later sale is open. Bangia is an unargued opinion to which counsel agreed; Shroff, a direction “in terms of section 51”, is the Revenue’s best authority.
• Delay compensation has been held capital in two flat-buyer cases; the Revenue’s hook is the word “claim” in the definition of interest.
• Tax deducted on transit rent was held not deductible in Sarfaraz S. Furniturewalla (2024), a private civil writ in which the Department was not a party, and Ganga Appa Mhaskar (2026), in which the Department was not heard, made a developer pay it over to the occupants.
• Registered agreements reach the Department through the Sub-Registrar’s reports, and information-driven reopenings are common. The additions have mostly failed, and the penalties with them.

What the member receives, and what the agreement calls it

The tax analysis does not turn on the name, but the name decides which argument the Assessing Officer reaches for first.

Hardship or displacement compensation. A lump sum, often computed per square foot of the old carpet area and paid in instalments. In Urmila Dhelia the entitlement of Rs 62,05,000 was paid 10 per cent on the member’s consent, 10 per cent on the society’s consent, 55 per cent on vacating and 25 per cent on handing over possession to the developer. In Pendharkar it was Rs 5,500 a square foot, Rs 82,00,000 in all, described in clause 3.6 as a “predetermined lump sum amount for having given concurrence and consent for the redevelopment of the Property”.

Corpus. Either a maintenance fund paid to the society, or hardship compensation by another name (as in Bhimani, Upinder Kaur Khalsa Rao and Lawrence Rebello).

Rent for alternate accommodation. A monthly sum from vacating to possession, often with a deposit and escalation if the project overruns; Pendharkar’s agreement provided Rs 135 a square foot a month. In the Gujarat Housing Board scheme in Hansaben Ratubhai Prajapati v. State of Gujarat (Gujarat High Court, Special Civil Application 4216 of 2023, 11 April 2023) the developer offered a rent deposit of Rs 27,000, advance rent of Rs 13,500 and Rs 13,500 a month.

Shifting charges and brokerage. A fixed sum at each end, or reimbursement of the transporter and the broker; Bhimani involved Rs 9,750 of brokerage and Rs 2,500 of shifting.

Delay compensation, payments in kind and side payments. Extra rent or a lump sum for each month of delay; car parking, developer-borne stamp duty and funded maintenance; occasionally a premium to the last few members whose consent the developer needs.

In Gujarat, rule 23 of the Gujarat Ownership Flats Rules, inserted by the Gujarat Ownership Flats (Amendment) Rules, 2019, requires “free alternative accommodation to the members till the redeveloped flat is handed over to the member, or cash in lieu of existing premises or any combination”, the “corpus fund, if any, shifting charges”, and a penalty for delay.

The capital receipt line: what each authority actually decided

Delilah Raj Mansukhani: the root, and why it is not a society case

Smt. Delilah Raj Mansukhani v. ITO, ITA 3526/Mum/2017, assessment year 2010-11, is the order every later decision quotes; the passage quoted is from the order of 29 January 2021, made after a recall in MA 460/Mum/2019. The assessee held a 50 per cent share in a Bandra West property gifted to her by her uncle, and had granted development rights under an agreement of 4 July 2009 for Rs 2,53,00,000 plus two flats. The sum in issue was Rs 2,60,000 for alternative accommodation, added by the Commissioner (Appeals) by enhancement because she “has not paid any rent”.

At paragraph 5 the Bench held that “compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitute capital receipt as the property has gone into re-development”, and that the payment “is in the nature of hardship allowance / rehabilitation allowance and is not liable to tax”. It then quoted Devshi Lakhamshi Dedhia, a society member’s case that could not be traced; the society-member facts in paragraph 5 are Dedhia’s. The ground on the power to enhance was left undecided (paragraph 7). Delilah is authority that alternate-accommodation money is capital even where no rent was paid, but it is not a society case and gives no reasoning beyond Dedhia.

Kushal K. Bangia: the first reasoned holding for a society member

Kushal K. Bangia v. ITO, ITA 2349/Mum/2011, assessment year 2007-08, pronounced on 31 January 2012, concerned a member of Vile Parle Ramesh CHS who received, besides a flat with 173 square feet of extra area, Rs 6,12,000 of displacement compensation (Rs 34,000 a month) and Rs 11,75,000 of “additional compensation”. The Assessing Officer taxed the Rs 11,75,000 as casual income and the Commissioner (Appeals) as income from other sources.

The Departmental Representative’s only defence, as paragraph 4 records, was that the compensation was the member’s “share in profits earned by the developer”. The Bench called that a “fallacy”, held that the flat “is certainly a capital asset in the hands of the assessee and compensation is referable to the same”, and that the receipt “is outside the ambit of income under section 2(24) of the Act”. The same paragraph adds: “However, in our considered opinion and as learned counsel for the assessee fairly agrees, the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat”.

Kunnama V. Balakrishna: the dividend theory rejected, with no one for the assessee

Smt. Kunnama V. Balakrishna v. ITO, ITA 2577/Mum/2023, assessment year 2011-12, decided on 12 December 2023, concerned Rs 25,21,508 of “Hardship Compensation” paid to a retired member of MIG CHS in Bandra East under an agreement of 31 October 2010 with DB-MIG Realtors and Builders, by a cheque in her name routed through the society, in a reopened assessment. No one appeared for her after five listings (paragraph 2).

The Assessing Officer gave the fullest statement of the dividend theory: the society had received Rs 149.89 crore from the developer, a third party, and handed it to members, so the payment was “akin to dividend distributed by the housing society”, relying on Bangalore Club v. CIT (the Karnataka High Court’s judgment, 156 Taxman 323, affirmed by the Supreme Court on 14 January 2013). The Tribunal held at paragraph 5 that the compensation was a capital receipt and that Bangalore Club “is not relevant on the issue in hand”, without giving its own reason. It carried the cost-reduction sentence forward from Bangia and from Jitendra Kumar Soneja (which Kunnama cites as (2016) 161 ITD 269 (Mum), and which could not be read) as an observation, allowing the appeal “Subject to these observation”. Kunnama is good on result and weak on reasoning.

Urmila Dhelia: the Tribunal’s own holding, and what it left open

Smt. Urmila Dhelia v. ITO, ITA 4259/Mum/2025, assessment year 2011-12, pronounced on 6 January 2026, concerned a member of MIG CHS (Bandra East) Group IV entitled to Rs 62,05,000 under a tripartite agreement of 17 September 2010, of which Rs 6,20,500 was received in the year. The Assessing Officer taxed the whole Rs 62,05,000 as a “dividend in the hands of the shareholders”; the Commissioner (Appeals) called it “a quid pro quo benefit which was taxable under general provisions of section 56(1) of the Act”.

The Tribunal’s own operative words are at paragraph 8: “the amount received by the assessee as hardship compensation, being capital receipt is not liable to tax and the order passed by the first appellate authority cannot be sustained”. The paragraphs before it quote other orders. The reopening ground (paragraph 9) and the timing ground, that only 10 per cent had been received as a refundable advance, were not decided; the ground against initiation of penalty under section 271(1)(c) was dismissed as premature (paragraph 11). A different order, on a section 270A penalty for assessment year 2018-19, is discussed under penalty below.

Ranjana Hemant Pendharkar: consent money is still not transfer consideration

Ranjana Hemant Pendharkar v. ITO, ITA 7825/Mum/2025, assessment year 2016-17, pronounced on 25 March 2026 by a Bench presided over by the Vice President, is the best-reasoned order on a lump sum. The member of Radha Kunj CHS in Santacruz West received Rs 82,00,000 under clause 3.6, which described the payment as a lump sum “for having given concurrence and consent for the redevelopment of the Property” and as covering hardship in shifting, “allowing the Developer to demolish their Flats”, and sharing the common areas with more persons.

That wording is the Revenue’s best material, and the Assessing Officer used it to treat vacating as a transfer under section 2(47) and the compensation as capital gain. The Tribunal read the clauses together and held at paragraph 11 that “the lump-sum compensation paid to each member of the society is not towards consideration of sale/transfer but for mitigating hardship of the members. Thus, in our view, such compensation cannot be treated as consideration for transfer of any right in the immovable property.” At paragraph 12 it held that the Rs 82,00,000 “is not taxable at the hands of the assessee”.

Two limits. The Bench did not adopt or reject the cost-reduction sentence, which appears only inside a quotation from Narayan Devarajan Iyengar (the chain is traced below). And the extra 56 per cent carpet area was remanded on procedure, as Part 1 explains.

Viren Vashi: the consent-fee split rejected

In Viren Vashi v. ITO, ITA 3830/Mum/2023, assessment year 2016-17, pronounced on 22 July 2024, the Commissioner (Appeals) accepted Rs 1,00,000 of a Rs 25,00,000 payment as shifting but taxed the remaining Rs 24,00,000 as paid for consent. The Tribunal held at paragraph 6 that “whatever nomenclature is given to the said sum of amount, the fact remains that it has been paid to compensate the assessee to bear the hardship caused due to shifting/re-shifting of premises underwent re- development”. Viren Vashi disregards the label rather than construing it; Pendharkar reached the same result by reading the clause. Together they answer the consent-fee argument.

The rest of the line

Many shorter orders follow one another without fresh reasoning, among them Narayan Devarajan Iyengar (ITA 106/Mum/2023, 10 May 2023), a non-resident MIG member; Late Chitra Chakola (1 August 2024) and Nalni Sanjeev Nadkarni (24 July 2024); Mildred Ponnoth (30 July 2024), a non-resident reopened under section 148A; Upinder Kaur Khalsa Rao (4 March 2024), following Lawrence Rebello (Indore, 29 September 2021); Laxmikant H. Renuke (31 July 2024) and Janani Subramanyam Sunder (11 September 2026); Subhash Suryakant Phadkar (22 January 2026); and Kishor Jamnadas Morzaria (21 August 2026), where Rs 4,59,506 that the member described as compensation for the developer’s use of additional FSI and TDR was held capital as hardship compensation, without discussion of the FSI point. The Surat Bench followed the line in Ishwar Vithal Navadia (30 October 2025), and the Kolkata Bench applied it to a landowner’s transit rent in Amitabha Sanyal (13 March 2023).

The Bombay High Court has not decided the point in a tax appeal. In Sharat Chandra Roongta and batch (16 February 2024) a Division Bench quashed orders rejecting objections to the reopening of assessees described as “identically placed” to those in Delilah and Lawrence Rebello, and sent the matters back for the Assessing Officer to consider those orders, keeping “All rights and contentions” open. It is not a ruling on taxability.

The Revenue’s arguments, and why they have failed so far

Income from other sources under section 56(1), as a quid pro quo. This was the Commissioner (Appeals)’ theory in Urmila Dhelia: the amount was “for temporary settlement till the time the builder would exploit the land commercially”. The answer is that a receipt does not become income because it is paid under a contract; Bangia put it as “a capital receipt simplicitor cannot be taken as income”. The definition in section 2(24) is inclusive, but none of its clauses reaches a private developer’s payment for displacement; clause (xviii) reaches assistance “by the Central Government or a State Government or any authority or body or agency” in the form of a subsidy, grant, incentive, waiver, concession or reimbursement, words that read naturally as public assistance.

A dividend from the society, on a breach of mutuality. The Assessing Officers in Kunnama, Urmila Dhelia, Chitra Chakola, Laxmikant Renuke and Janani Sunder all treated the money as a dividend from the society; in Kunnama and Renuke they relied expressly on Bangalore Club v. CIT. The Tribunal rejected the theory every time, mostly without analysing Bangalore Club. The Supreme Court there held a club’s interest from its member banks outside mutuality because “the arrangement lacks a complete identity between the contributors and participators” (paragraph 26). That is about whether a surplus is the mutual body’s income, not whether a payment to a member for his own displacement is his income. Where the society is a conduit, the theory has nothing to hold: in Iyengar the compensation “shall be handed over by the Developer to the Society for and on behalf of the members and the Society shall give a valid and sufficient discharge” (paragraph 7), and in Renuke the member was a “consigning party” to the tripartite agreement (paragraph 13).

Consideration for the transfer of the old flat. The Assessing Officer in Pendharkar, and the Commissioner (Appeals) in Upinder Kaur Khalsa Rao, treated vacating as a transfer under section 2(47) and the compensation as its price. Pendharkar paragraph 11 answers it, though the Tribunal accepts that characterisation where the member asks for it, as the next section explains.

A sum received without consideration under section 56(2)(vii)(a) or (x)(a). In Subhash Phadkar the Revenue’s case, as the Tribunal described it, was that section 56(2)(vii)(a) taxes sums above Rs 50,000 received without consideration and that the receipt is not expressly exempted, and the Departmental Representative added that section 2(24) does not exempt it. The present text, section 56(2)(x)(a), reaches “any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees”. The member consents, vacates, endures years of displacement and surrenders his flat for demolition; the payment is not gratuitous. The Revenue’s reply is a dilemma: if what the member gives for the payment is his consent and his flat, it is consideration for a transfer, the theory Pendharkar rejected; if it is not, it was received without consideration. The member’s answer is that compensation for a loss suffered is neither a gift nor a price. Phadkar deleted the addition by following Sarfaraz and the coordinate Benches without engaging with the argument, so the answer rests on the text.

Nothing to do with the capital asset. In Upinder Kaur Khalsa Rao the Assessing Officer said the receipt was “monetary compensation by the builder” for giving up possession, and “has got nothing to do with capital value enhancement of the redeveloped property”. This is the most coherent version of the Revenue’s case. Bangia’s answer is that the compensation is “referable to” the flat; the hardship exists only because that asset is being demolished and rebuilt.

The members sold TDR to the developer. In Rajnikant D. Shroff the Commissioner (Appeals) said the lump sum was paid “in consideration of TDRs received from the members of the society”. The Tribunal held at paragraph 7 that “the extra FSI / TDR to be loaded to the new building is the responsibility of the developer and he has to purchase such TDR from third parties”.

The contractual label “rent”. In Nathani Parekh Constructions the Departmental Representative said that a clause calling the payment rent, with a covenant to deduct tax, settled its character. The Tribunal disagreed, but careless drafting hands the argument over.

When the member asks for capital gains treatment

A member with a large receipt who would rather claim section 54 than argue about character may offer it as long-term capital gains, and the Tribunal has accepted that.

In Pradyot B. Borkar v. ACIT, ITA 4070/Mum/2016, assessment year 2011-12, decided on 17 January 2020, a MIG Colony member received, besides a new flat, Rs 53,80,500 on the order’s own components: Rs 25,00,000 for “non-adherence by the re-developer to the earlier agreed terms”, Rs 28,50,500 for “Beneficial right and interest in corpus and income of the society and nuisance annoyance and hardship” and Rs 30,000 for shifting. (The order gives the total variously as Rs 53,80,500, Rs 53,50,500 and Rs 53,30,500.) He offered it as long-term capital gains; the Assessing Officer taxed it as income from other sources. The Tribunal held at paragraph 8 that the amount “was received by the assessee only because of handing over the old flat for the purpose of re-development” and “has to be treated as income under the head ‘Capital Gain’”. The capital-receipt alternative was not pressed.

Borkar and Shroff were written by the same Member who, as Vice President, wrote Pendharkar; in Borkar the assessee asked for capital gains (arguing in the alternative that a capital receipt should reduce the cost of the new flat), in Pendharkar she said it was not consideration, and Pendharkar did not repeat Shroff’s section 51 direction. Characterisation is partly the member’s choice. In Divyesh Ramniklal Muni (28 October 2025) the member included his hardship receipts of Rs 1,25,55,313 and Rs 41,85,104 in the consideration for a taxable exchange and claimed section 54, which survived the Revenue’s appeal for the 205 square feet of added area paid for by set-off against that compensation (Part 1). In Colombia CHS (22 December 2025) the members offered their shares of Rs 2.28 crore and claimed section 54EC.

The choice has traps. In Ashok Ramchandra Naik (10 April 2026) a member who had received Rs 1,06,51,198 in one year, offered the corpus and part of the hardship compensation in that year and spread the rest over three later years, found the Assessing Officer adding the deferred Rs 33,70,773 in the first year; the Tribunal observed that hardship compensation is a capital receipt but deleted the addition because it taxed the same amount twice (paragraph 7), leaving the member’s own offers undisturbed. In Sujan Gopal Mukherji (31 July 2025) the Assessing Officer added a later year’s hardship allowance because the member had settled an earlier year’s addition under the Vivad se Vishwas scheme; the Tribunal remanded without deciding whether a settlement is an admission.

When the receipt arrives in instalments

In Urmila Dhelia the whole Rs 62,05,000 was taxed in the year only Rs 6,20,500 was received, and the timing ground was never reached. In Shobhana Dinesh Trivedi (Surat Bench, 30 July 2025) a member who offered the year’s receipts of Rs 1,07,90,553 on a Bandra flat was taxed on the whole agreement value of Rs 2,54,61,685 in the year of transfer, with hardship receipts of Rs 1,45,30,876 in later years, part of which she treated as exempt; the Commissioner (Appeals) had decided ex parte, and the Tribunal set the matter aside to the Assessing Officer without deciding it. Timing matters only if the Assessing Officer succeeds in taxing the receipt under some head, or if the member himself takes the capital gains route. A member should keep the payment schedule and record in the return why later instalments are not offered.

The cost-reduction view: opinion, observation and direction

The most consequential question is whether hardship compensation comes back when the flat is sold. Four orders state the cost-reduction sentence as their own, with very different weight; others carry it in quotation.

Bangia (2012): an unargued opinion to which counsel agreed. The receipt “ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains”; the Bench put this as “our considered opinion”, recorded that “learned counsel for the assessee fairly agrees”, and allowed the appeal “Subject to these observations”. The point was not argued and no provision is identified as the mechanism.

Jitendra Kumar Soneja (2016): not read. It is known only from quotations of its paragraph 3.2 in Lawrence Rebello, Iyengar, Upinder Kaur and Pendharkar, where the single Member states the sentence as his own view; Kunnama cites it as (2016) 161 ITD 269 (Mum). It should not be cited as authority.

Kunnama (2023): an observation. The Bench recorded the Bangia and Soneja view, with no one appearing for the assessee.

Rajnikant D. Shroff (2016): a direction. Rajnikant D. Shroff v. ACIT, ITA 4424/Mum/2014, assessment year 2009-10, decided on 23 September 2016, is different in kind. The member of Parishram CHS at Pali Hill was entitled to Rs 1,73,75,487 and had received Rs 26,23,238 on signing; the balance was held up by a dispute between the society and the developer. The Tribunal held at paragraph 9 that “the cost of acquisition / cost of improvement is not ascertainable, therefore, it cannot be brought to tax under the head ‘Capital Gain’ and has to be treated as capital receipt”, and then: “However, we make it clear, the aforesaid amount received by the assessee has to be reduced from the cost of acquisition of the asset in terms of section 51 while computing capital gain arising from sale of such asset in future.” No concession is recorded, which makes this the Revenue’s best authority.

The quotation chain. The sentence also travels inside favourable orders. Lawrence Rebello (Indore Bench, 29 September 2021, paragraph 11) reproduced paragraph 3.2 of Soneja, sentence and all, and held “Respectfully following the above observations”; Iyengar and Upinder Kaur Khalsa Rao quoted that passage and followed it, and Pendharkar quoted Iyengar and said its ratio “clearly applies”. None of them discussed the sentence or directed a reduction, but the Revenue will say it has been carried forward without disapproval.

The member’s answer to Shroff. First, section 51 reduces cost only where the asset “was on any previous occasion the subject of negotiations for its transfer” and the assessee received and retained “any advance or other money” in respect of “such negotiations”. Read with section 56(2)(ix), which taxes a forfeited advance where “the negotiations do not result in transfer”, and the proviso to section 51, which then stops the same sum from also reducing cost, the section is about negotiations that failed. Hardship compensation is paid for displacement under a development agreement that is carried out. The Revenue’s reply is the width of “or other money received and retained”, and Shroff’s own facts: a signing amount under an agreement in dispute, which the member himself said might be cancelled, when “the amount received on signing of agreement is likely to be refunded to the developer” (paragraph 3). Those facts may explain the reference to section 51, and Shroff is distinguishable on them.

Second, Shroff rested on a transfer whose cost could not be ascertained, a weaker ground than Pendharkar’s holding that the compensation “cannot be treated as consideration for transfer of any right in the immovable property”; a payment that is not consideration for the flat has no logical route to reducing its cost.

Third, the later decisions that most fully considered the character of the receipt, Pendharkar and Urmila Dhelia, did not apply section 51 and gave no reasoning of their own on cost. The Revenue will answer that neither rejected it either, and that Pendharkar (paragraph 12) and Upinder Kaur Khalsa Rao (ITA 3670/Mum/2023, paragraph 8) followed orders that reproduce it, as the quotation chain shows. Sections 48, 49 and 55 contain no provision that reduces the cost of a capital asset by a capital receipt that is not consideration for its transfer.

The Revenue’s answer to the member. Without a reduction, the receipt is never taxed at all; the Jethalal D. Mehta passage quoted in Land Breez CHS (not read in its own text) said the same of receipts for TDR. In Borkar the member’s own counsel argued in the alternative that a capital receipt “has to be reduced from the cost of the new flat” (paragraphs 5 and 6). And since the Finance Act, 2023 amended section 55(2)(a) from 1 April 2024 to give “any other right” a nil cost unless purchased, the Revenue may say that Shroff’s ground, that the cost “is not ascertainable”, is closed for rights acquired without cost: if the receipt is for a right it is taxable at nil cost, and if it is for the flat it reduces the flat’s cost. The member’s reply is that it is for neither; it is compensation for displacement.

Where it stands. No High Court has decided the point; the record holds one opinion given without argument and with counsel agreeing, one single-Member order known only in quotation, one unargued observation, one direction under a provision that does not obviously fit, and a chain of favourable orders that quote the sentence without discussing it. No order has examined the statutory mechanism and rejected the reduction. Nothing in the Act allows a negative cost, so where the receipt exceeds the old flat’s cost, the cost-reduction view takes the cost to nil and the excess escapes tax.

Worked example: hardship compensation carried through to a sale of the new flat

Illustrative facts. A resident individual bought a flat in an Ahmedabad apartment society in June 2006 (financial year 2006-07) for Rs 22,00,000 including stamp duty and registration. The society redevelops under section 41A. The member receives hardship compensation of Rs 15,00,000 on vacating in financial year 2021-22, plus monthly rent, which every view treats alike and is ignored. He takes possession of the new flat in November 2024 and sells it for Rs 1,35,00,000, paying brokerage of Rs 1,35,000. Two sale dates are tested: 20 January 2026, under the 1961 Act, and 10 August 2026, in tax year 2026-27 under the 2025 Act.

The assumption that drives the cost. The example assumes the continuation view stated in Rajesh Shamji Furia (paragraphs 10 and 16): the new flat continues the old one, so its cost is taken as the old flat’s cost and its date of acquisition as 2006. Furia itself left open whether the holding period runs from the original purchase or from the development agreement (paragraph 17) and did not decide the cost; both are assumptions here, which make the flat long-term and “acquired before the 23rd day of July, 2024” for the comparison in the second proviso to section 112(1)(a) and in section 197(3) of the 2025 Act. On the exchange view the cost, the date of acquisition and that comparison all change; Part 1 works through it. Tax is shown before surcharge and cess. The Cost Inflation Index is 122 for 2006-07, 376 for 2025-26 and 384 for 2026-27, as shown in the Department’s cost inflation index table.

The three views. View A treats the Rs 15,00,000 as a capital receipt that leaves the cost untouched. View B reduces the cost by the receipt, as Bangia and Shroff would. View C is the Revenue’s other-sources theory: the Rs 15,00,000 is taxed in assessment year 2022-23 at an assumed marginal rate of 30 per cent, and the later sale is computed as in View A.

Sale on 20 January 2026 (financial year 2025-26, the 1961 Act)

Item	View A: cost unreduced	View B: cost reduced
Sale price less brokerage	Rs 1,33,65,000	Rs 1,33,65,000
Cost of acquisition	Rs 22,00,000	Rs 7,00,000
Gain without indexation	Rs 1,11,65,000	Rs 1,26,65,000
Tax at 12.5 per cent	Rs 13,95,625	Rs 15,83,125
Indexed cost (376/122)	Rs 67,80,328	Rs 21,57,377
Gain with indexation	Rs 65,84,672	Rs 1,12,07,623
Tax at 20 per cent on indexed gain	Rs 13,16,934	Rs 22,41,525
Tax payable (excess over the old-law tax ignored)	Rs 13,16,934	Rs 15,83,125
Excess ignored under the second proviso	Rs 78,691	Rs 0

Sale on 10 August 2026 (tax year 2026-27, the 2025 Act)

Item	View A: cost unreduced	View B: cost reduced
Sale price less brokerage	Rs 1,33,65,000	Rs 1,33,65,000
Cost of acquisition	Rs 22,00,000	Rs 7,00,000
Gain without indexation	Rs 1,11,65,000	Rs 1,26,65,000
Tax at 12.5 per cent (A in section 197(3))	Rs 13,95,625	Rs 15,83,125
Indexed cost (384/122)	Rs 69,24,590	Rs 22,03,279
Gain with indexation	Rs 64,40,410	Rs 1,11,61,721
Tax at 20 per cent on indexed gain (B in section 197(3))	Rs 12,88,082	Rs 22,32,344
Tax payable (the excess E = A - B ignored)	Rs 12,88,082	Rs 15,83,125
Excess ignored	Rs 1,07,543	Rs 0

What each view costs over the life of the receipt

Sale date	View A	View B	View C (other sources, then sale)
20 January 2026	Rs 13,16,934	Rs 15,83,125	Rs 4,50,000 + Rs 13,16,934 = Rs 17,66,934
10 August 2026	Rs 12,88,082	Rs 15,83,125	Rs 4,50,000 + Rs 12,88,082 = Rs 17,38,082

Reading the tables. The cost-reduction view costs this member Rs 2,66,191 on a January 2026 sale and Rs 2,95,043 on an August 2026 sale, 17.75 and 19.67 per cent of the receipt, well above 12.5 per cent. The reduction raises the gain by Rs 15,00,000 and also destroys the value of the indexation comparison.

There is a further twist: on the literal reading the reduced cost is indexed from 2006-07 although the money was received in 2021-22; an argument that the reduction should operate on the indexed figure has no support in any order or in the definition of indexed cost.

View C is the most expensive by a wide margin: Rs 4,50,000 for assessment year 2022-23, before interest, with the later sale taxed in full. Under the 2025 Act nothing changes in substance: section 197(3) reproduces the comparison as E = A - B, with indexed cost supplied by section 72(2) only for item B, and the August figures differ only because the index for 2026-27 is 384.

Variant: where the receipt exceeds the cost. Had the compensation been Rs 30,00,000, the reduced cost would be minus Rs 8,00,000. Taking it as nil, the gain on a January 2026 sale is Rs 1,33,65,000 and the tax Rs 16,70,625 (the 20 per cent figure, Rs 26,73,000, being higher). That is Rs 3,53,691 more than View A, and Rs 8,00,000 of the receipt escapes tax even on this view.

Corpus paid to the society and passed on to members

The society’s own position belongs to Part 4. Money that reaches the member through the society does not change character on the way, provided the documents show it was his from the start. In Colombia Co-operative Housing Society, a society-side order, individual cheques from the developer into each member’s account and a resolution reserving the money to the original members showed that Rs 2.28 crore was not the society’s receipt; in RBI Employees Bhagvati CHS (27 October 2025) the schedule to the development agreement listing the members who were to receive the consideration did the same work.

The reverse case is where the society receives and keeps the corpus. In MIG Co-operative Housing Society Group II v. ITO (17 February 2017) the society received Rs 3.50 crore of a Rs 15 crore corpus in the year, and the Tribunal held at paragraph 8.3 that it was to be assessed as capital gains, “as claimed by the assessee”; the Bombay High Court, on the Revenue’s question about the year of taxability, said it was “unable to find any error in the conclusion arrived at by the ITAT” (14 February 2024). If the society later distributes that corpus, the member’s position is untested; payment directly into each member’s account, under an agreement naming him, avoids the question.

Transit rent: compensation for displacement, not rent

The monthly payment for alternate accommodation is the one receipt the High Court has considered, though not in a tax appeal.

Sarfaraz S. Furniturewalla and Ganga Appa Mhaskar, described correctly

Sarfaraz S. Furniturewalla v. Afshan Sharfali Ashok Kumar, Writ Petition 4958 of 2024, decided by a single judge of the Bombay High Court on 15 April 2024, arose out of a Small Causes Court tenancy suit, where the developer’s counsel asked for PAN cards so that his client could deduct tax from “transit rent”. The Court held at paragraph 9.2 that the Tribunal’s view in Delilah and Ajay Parasmal Kothari “is a correct view”, and at paragraph 10 that “‘Transit Rent’ is not to be considered as revenue receipt and is not liable to be tax, as a result there will be no question of deduction of T.D.S. from the amount payable by the Developer to the tenant.” The Department was not a party, the Court did not analyse the wide Explanation to section 194-I (“any other agreement or arrangement for the use of” a building), and the recipient was a tenant.

Ganga Appa Mhaskar v. State of Maharashtra, Writ Petition 4683 of 2024 with connected petitions, decided by a Division Bench on 8 April 2026, concerned slum occupants whose transit rent had suffered 10 per cent TDS. Quoting Sarfaraz, the Bench held at paragraph 5 that the developer “is not justified in deducting the TDS from the amount of rent payable to the petitioners-tenants”; that for amounts already deposited the developer must “seek appropriate reliefs” from the Department; and that deduction on the Department’s directions “is no ground to deprive the petitioners”; it directed the developer to pay the amount over within four months. The Income Tax Department is not shown as a party or as appearing, although the order contemplates that the tax may have been deducted on its directions, and the order says nothing about the occupants’ tax credit. An Assessing Officer will call Sarfaraz a civil clarification given without hearing the Revenue; the reply is that a Division Bench has since applied it, though that Bench too heard no one for the Department.

The member who stays with relatives, or spends less than he receives

Ajay Parasmal Kothari v. ITO, ITA 2823/Mum/2022, assessment year 2013-14, decided on 3 April 2023, is the direct authority. The member of Satsang Bharti CHS in Malad received Rs 3,73,191, did not take a flat on rent, and lived with his parents; the Assessing Officer taxed it because he “has not utilized any amount of its receipt for his alternate accommodation”. The Tribunal held at paragraph 12 that “even though assessee has not utilized the rent received for his accommodation, however, he has faced hardship by vacating the flat for redevelopment and also adjusted himself during the period”, and at paragraph 13 that the receipt was capital. Sarfaraz approved it by name.

Dr. Girish Suresh Walavalkar v. ITO, ITA 4848/Mum/2026, decided on 17 September 2026, makes the point general. The member received Rs 13,50,216 and offered the net Rs 1,52,316 after rent paid; the Assessing Officer disallowed rent paid to a second landlord. The Tribunal held that the receipt’s “character cannot be determined by the amount actually expended by the assessee on alternative accommodation” (paragraph 24), that taxability “does not depend upon whether the recipient actually takes another premises on rent” (paragraph 26), and that the dispute about the second landlord “ceases to be determinative” (paragraph 29).

In Sunil O. Manaktala v. ACIT (31 July 2015) the Tribunal held the whole receipt of Rs 30,62,501 not taxable although the Assessing Officer had taxed only the balance after rent and brokerage; in Farida Zulfikar Lokhandwala (26 March 2024) a tenant who had offered 12 months’ rent “to avoid litigation” kept the rest untaxed.

The only order that made actual use relevant is Hitesh Amrutlal Bhimani v. ITO (single member, 26 December 2017), which remanded rent, brokerage, shifting and a corpus of Rs 81,250 “for verifying the actual utilization of compensation received by the assessee for payment of rent”. Kothari and Walavalkar are later and reject the test, but a member should keep his rent receipts.

The member whose old flat was let out, or who sub-lets the transit flat

No decision was found on the member who had let his old flat and now receives transit rent he does not need. The Revenue’s argument is simple: what the member lost was rent, and its replacement should be taxed as rent; in Kothari the member’s own alternative plea was house property, and in Shroff the Assessing Officer first taxed the lump sum that way. The member’s answer is that he is paid as an owner deprived of the use of his property; who would have used it is his affair. On Sarfaraz paragraph 10, rent is what a tenant pays a landlord; transit rent runs the other way, and Nathani Parekh paragraph 10 applied that reasoning. A member who offers the transit rent to avoid a dispute should do so without prejudice and not as house property, because the old flat no longer exists to yield an annual value.

A member who sub-lets his transit flat receives two things: displacement compensation, which keeps its character, and rent from his sub-tenant, which is income. Sub-letting undermines the displacement narrative; the two flows should be kept apart.

Shifting, deposits, parking, maintenance and payments to holdouts

Shifting charges and brokerage. No order analyses them separately. Dedhia (known only from quotations) and the Commissioner (Appeals) in Viren Vashi treated shifting as not taxable; Borkar rolled it into capital gains at the member’s instance; the quantum order in Haresh Damji Shah (13 October 2025, paragraph 9) calls shifting charges “admittedly revenue expenditure”, a cryptic sentence best not quoted either way. The member’s position, which no order has rejected, is that these reimburse the cost of moving and are capital on the same footing as hardship compensation.

Rent deposits. If the developer pays the transit deposit to the landlord, or to the member on terms that it be returned when he moves back, the member receives nothing of his own. If the developer pays it to the member outright, and the member recovers it from his transit landlord at the end, the member will say the deposit is part of the displacement compensation and takes the same capital character as the rent; the Revenue may say that a deposit he recovers and keeps, when the rent itself was paid by the developer, compensates no loss and is a sum received without consideration. No order on the point has been found. The agreement should say which it is, because an unexplained credit of a large deposit in the member’s bank account is the kind of entry that generates a section 68 query.

Car parking and developer-borne stamp duty. In Haresh Damji Shah (13 October 2025) the Tribunal deleted additions for a car park, because “it was allotted along with alternative flat”, and for Rs 5,80,500 of stamp duty that “was paid by builder as per term of agreement”. Both follow the flat (Part 1).

Funded maintenance and amenities. Where the developer pays each member’s maintenance charges to the society for two or three years, it discharges the member’s own liability. He receives no money, and no provision taxes an individual on a third party’s payment of his maintenance; the Revenue would have to treat it as part of the consideration for his flat on the exchange view, which only enlarges the value against which section 54 is claimed. Where the developer pays the society a lump sum for maintenance, a clubhouse or a lift fund, the receipt is the society’s, from a non-member, outside mutuality on the analysis in Part 4: the society will call it a capital fund, the Revenue a replacement for maintenance income.

Consent fees and premiums to holdouts. Pendharkar (clause 3.6: consent and permission to demolish) and Viren Vashi (Rs 24 lakh said to be for consent) both held money paid for consent to be hardship compensation, but both concerned a uniform entitlement. A premium paid only to the last few members whose consent the developer needs is harder to describe as compensation for displacement; it is argued both ways below. A member paid by the developer to canvass other members is earning income.

Gujarat holdouts compelled to vacate. In Sarojben Kiritbhai Shah v. Ahmedabad Municipal Corporation (Letters Patent Appeal 1075 of 2022, 23 January 2023), a Division Bench of the Gujarat High Court held that a non-consenting occupant who was shifted under section 41A, with rent paid by the developer, suffered “no eviction or dispossession” (paragraph 52). The holdout therefore gets the same rent and flat as everyone else, and his receipts should be treated the same way. An Assessing Officer may quote the phrase against the displacement rationale; the answer is that the Court found no eviction because the developer was paying for alternate accommodation. Part 3 deals with holdouts.

Projects that never start, and money refunded. In ITO v. Suraj Heights B Co-op Housing Society Ltd., ITA 1371/Mum/2026, pronounced on 13 May 2026, a society’s agreement of 2015 had been registered at a value of Rs 11,38,67,000 and never acted upon: no permissions, no demolition, no money, the members still in their flats. The Assessing Officer reopened and taxed the whole value as the society’s income from other sources. The Tribunal upheld the deletion, holding that the agreement “was never acted upon” and the figure was “merely an agreement value” (paragraph 11), that the society “was not the owner of any of the flats” (paragraph 12), and that the addition was “merely a notional income” (paragraph 13). The same reasoning supports a member against an addition on a registered alternate accommodation agreement for a project that stalls before he vacates, though Suraj Heights concerned a society that owned no flat, and the Revenue’s route against a member would be section 56(2)(x), which that order did not consider. Where money is received and later refunded, the position is untested: in Manish Vijay Chembur CHS (28 November 2025) a society’s Rs 4 crore of deposit and part hardship, refunded on termination, went back to the Assessing Officer after an ex parte addition. Keep the termination correspondence and the refund trail with the return for the year of receipt.

The opposite case, a project that aborts and a member who keeps what he was paid, gives the Revenue a statutory route the decided cases have never had to meet. Section 56(2)(ix) taxes “any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset” where “such sum is forfeited” and “the negotiations do not result in transfer of such capital asset”, and section 51 reduces the cost of the asset by money received and retained in such negotiations unless it was taxed under that clause. The member’s answers are that a sum paid under a concluded development agreement as compensation for displacement is not money received in the course of negotiations, that nothing is forfeited where the developer simply abandons the project, and that on the continuation view no transfer by the member was ever in contemplation.

Delay compensation and “interest” for late possession

No redevelopment decision on the point. Gujarat agreements under section 41A must contain a penalty clause for delay, but no order analyses delay compensation paid to a redevelopment member as a separate item. Borkar contained Rs 25,00,000 for the developer’s “non-adherence … to the earlier agreed terms”, offered by the member as capital gain; Phadkar contained the same component; and in Upinder Kaur Khalsa Rao the Departmental Representative said part of the payment was of that kind. Both additions were deleted without separate reasoning on it. That is thin authority.

The flat-buyer cases. In Vijay Kumar Bhan v. ITO, ITA 1799/Mum/2024, assessment year 2017-18, decided on 24 September 2024, a buyer of a Noida flat received Rs 3,95,010 from the builder (Mahagun), certified as a “penalty” for delayed possession and shown in Form 26AS; the processing centre’s addition of Rs 3,99,000 under section 143(1) was upheld by the Commissioner (Appeals) under section 56(2)(x). The Tribunal held at paragraph 11 that the amount was compensation “for delayed handing over of the possession of the flat … which is in the nature of a ‘capital receipt’ received towards the capital asset”, drawing the redevelopment analogy itself: such compensation “is also akin to” hardship compensation and transit rent. In Bhupinder Singh Julka v. ACIT, ITA 1807/Del/2022, decided on 7 August 2023, the builder credited Rs 24,86,030 of delay compensation, computed “@9% per annum simple interest”, against the price of an office and deducted tax under section 194A; the Delhi Tribunal still deleted the addition. The payer’s treatment as interest does not fix the character in the recipient’s hands.

Is it interest on compensation under section 56(2)(viii)? Section 56(2)(viii) taxes “income by way of interest received on compensation or on enhanced compensation referred to in sub-section (1) of section 145B”; section 57(iv) allows a deduction of fifty per cent of that income; and section 145B(1) deems such interest to be income of the year of receipt. The words fit poorly. Section 145B(1), which speaks of interest “on any compensation or on enhanced compensation”, uses the language of section 45(5) on compulsory acquisition, though it does not mention acquisition; a developer’s contractual payment for running late is compensation itself, not interest paid on an award of compensation. The Calcutta High Court held in PCIT v. West Bengal Housing Infrastructure Development Corporation (ITA 84 and 85 of 2018, 9 August 2018), on the payer’s side, that a payment to allottees for delay in giving possession, though described as interest at fixed-deposit rates, was “purely contractual” compensation for the allottee’s loss of the use of the flat, and that “since there is neither any borrowing of money nor incurring of debt”, the definition of interest in section 2(28A) “can have no application to such payments”. That reasoning keeps a delay payment outside section 56(2)(viii), section 57(iv) and section 145B(1), and outside section 194A at the developer’s end.

The Revenue’s answer: the word “claim”. WBHIDCO is a payer-side ruling of a non-jurisdictional High Court that turned on the absence of a debt. Section 2(28A) covers interest payable “in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation)”, and a member’s accrued contractual right to be paid for delay can be called a claim. WBHIDCO did not have to deal with those bracketed words at length, and a developer that computes the payment as a percentage per annum on the member’s entitlement invites the argument. Even if the payment were interest, section 56(2)(viii) reaches only interest on compensation “referred to in sub-section (1) of section 145B”; the pairing with “enhanced compensation” and with the fifty per cent deduction in section 57(iv) points to awards of the compulsory-acquisition kind, and the member will say a payment under a private agreement is not one, although the text does not say so in terms. Where a developer pays interest for paying hardship compensation late, the words fit more closely and the Revenue’s argument is stronger. The usual risk is ordinary taxation under section 56(1) and deduction under section 194A, not the fifty per cent route.

Cost reduction again. If the delay payment is adjusted against the price of extra area, the Revenue may argue that it reduces the cost of the flat. In Vijay Kumar Bhan the assessee’s grounds said the amount had been adjusted against the cost of the flat, but the Tribunal did not deal with that or direct any reduction; the point is open.

Tax deducted on sums the member says are not income

Developers deduct tax on transit rent and hardship compensation because of a covenant, a TDS officer’s instruction, or caution; their side is in Part 2 of the developer series.

What the Tribunal has said about the developer’s obligation. In ITO (TDS) v. Nathani Parekh Constructions, ITA 4088/Mum/2023 and connected appeals, decided on 21 May 2024, the Tribunal applied Sarfaraz and held at paragraph 10 that alternate accommodation charges were not liable to deduction under section 194-I. In a separate order of 11 July 2024 it held that hardship and alternate-accommodation payments to tenants were not, in the Tribunal’s words, consideration “paid as part of a share in the land or building”, and so were not “consideration … under the agreement referred to in sub-section (5A) of section 45” within section 194-IC; ITO (TDS) v. N Rose Developers (30 January 2025) followed it for payments to slum occupants. On the Mumbai authority nothing should have been deducted.

What the member can do when tax was deducted anyway. There are two routes, and they are alternatives. The first is to recover the money from the developer, relying on Ganga Appa Mhaskar, which in Gujarat is persuasive but not binding.

The second is to claim credit in the return and seek a refund. Rule 37BA of the Income-tax Rules, 1962 provides in sub-rule (1) that credit “shall be given to the person to whom payment has been made or credit has been given”, and in sub-rule (3)(i) that it “shall be given for the assessment year for which such income is assessable”. The Revenue’s best argument, stated by the Commissioner (Appeals) in Coastal Gujarat Power Ltd, a power company’s case unrelated to redevelopment, is that claiming the credit while calling the receipt capital is “self contradictory”: section 198 deems sums deducted to be income received, and under rule 37BA credit is given only for the year in which the income is assessable. The Mumbai Tribunal (ITA 2298/Mum/2015, 15 March 2017) set that order aside and held the receipt capital (paragraph 9) without dealing with the point, so the remark survives only as an argument. The member’s answer is that section 198 operates only in computing income that is otherwise chargeable and does not turn a capital receipt into income, and that tax paid out of his money cannot be kept merely because he was right that nothing was taxable. No order on a member’s credit has been found. A member must not use both routes: if the developer repays and the credit still sits in Form 26AS and the AIS, claiming it too would be claiming the same money twice.

When the credit is reported on more than was paid. In Hiteshkumar Mohanlal Desai v. Assessment Unit (ITAT Surat, ITA 962/SRT/2025, 29 September 2026), a Daman landowner received Rs 25,00,000 but the developer deducted tax on Rs 2,86,25,000; he claimed credit of only Rs 25,000 and carried the rest forward. The Tribunal held that actual receipts governed and deleted the addition of Rs 2,45,32,692 (paragraphs 8 to 11), on evidence and parity with co-owners; the argument that section 45(5A) applied was not decided.

Non-residents and buy-outs. Section 195 requires deduction from “any other sum chargeable under the provisions of this Act” paid to a non-resident; whether a capital receipt is a “sum chargeable” under section 195 is taken up in Part 4. A member who takes cash instead of a new flat is selling, and the developer deducts under section 194-IA; that is Part 3.

AIS, SFT and the reopening that follows

How the information arrives. Rule 114E of the Income-tax Rules, 1962 (Sl. No. 10) required the Registrar or Sub-Registrar to report in Form 61A, by 31 May after the financial year, any “Purchase or sale by any person of immovable property” for Rs 30 lakh or more or with a stamp duty value of Rs 30 lakh or more. That is the 1962 Rules position for documents registered up to 31 March 2026; the corresponding rule in the Income-tax Rules, 2026 has not been confirmed. The obligation rests on section 285BA, under which a “specified financial transaction” is defined in sub-section (3) to include a “transaction of purchase, sale or exchange of goods or property or right or interest in a property”. The rule is narrower: Sl. No. 10 prescribes only a “purchase or sale”. Whether a permanent alternate accommodation agreement at nil consideration is a “purchase or sale” is therefore open: the member will say that an exchange is not within the prescribed entry; the Revenue will say that the section contemplates exchanges and that the stamp duty value of the new flat makes it reportable. The developer’s records are the other source: in Kunnama, Chitra Chakola and Nalni Nadkarni the reopenings rested on information about the developer’s payments to MIG members. In Ghatkopar Devang CHS (15 September 2026) the society said the stamp authority had used its PAN as the seller’s, so that the whole Rs 17.38 crore of the registration appeared as its transaction; the appeals were restored to the Commissioner (Appeals) on condonation of delay, without a decision on the merits. Additions of this kind against societies were deleted on the merits in Hardinge House CHS (31 August 2026) and Udayachal Goregaon CHS (10 September 2026), discussed in Part 4.

The procedure. Under section 148 as substituted by the Finance (No. 2) Act, 2024 from 1 September 2024, a notice can issue only if there is “information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment”, and sub-section (3)(i) treats as such information “any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time”. Neither AIS nor SFT is named. Before the notice, section 148A requires a show-cause notice “accompanied by the information which suggests that income chargeable to tax has escaped assessment”, the member’s reply, and an order with the prior approval of the specified authority.

Where the information comes from a search of the developer, the route depends on the date of that search and on what the Assessing Officer recorded. For a search initiated before 1 April 2021, section 153C applied where the Assessing Officer was satisfied that seized money, valuables, books or documents belonged to, pertained to or related to the member; without that satisfaction the ordinary reassessment provisions applied. For a search between 1 April 2021 and 31 August 2024, section 148A as it then stood did not apply only where the Assessing Officer recorded his satisfaction, with the prior approval of the Principal Commissioner or Commissioner, that money or valuables seized in the search (or requisitioned under section 132A) belonged to the member, or that books or documents so seized or requisitioned pertained or related to him; without that satisfaction and approval, the section 148A procedure applied in the ordinary way. For a search on or after 1 September 2024, section 158BD (substituted by the Finance Act, 2025 with effect from that date) brings in the block assessment regime where the Assessing Officer is satisfied that undisclosed income belongs to, pertains to or relates to a person other than the one searched; the firm’s pages on search and the block assessment explain. A member list or payment schedule supplied by the developer outside a search is not search material, and section 148A applies to it in full.

The defences that have worked. Four kinds.

The merits. Most additions fail on the merits: hardship compensation is capital, and the flat received in exchange is not received without or for inadequate consideration under section 56(2)(x). Part 1 sets out Anil Dattaram Pitale (17 March 2025), Snehalata Heramb Dhayagude (21 April 2026, a tenant’s case: no “receipt” before possession of the new premises) and ITO v. Paresh Mulayamchand Panday (20 May 2026, section 69 and stamp-duty additions deleted).

Sanction. In Vasantha Narayan Poojari v. ITO, ITA 9174/Mum/2025, decided on 18 March 2026, the owner of premises in a Bandra East society from which he ran a motor garage was reopened under section 148A on the gap between the agreement value and the stamp duty value of the shop he received. Approval had come from the Principal Commissioner, but after three years section 151(ii), as it stood before 1 September 2024, required the Principal Chief Commissioner or Chief Commissioner; following the Bombay High Court in Ramesh Bachulal Mehta and Rajeev Bansal, the Tribunal held the notice “void-ab-initio” (paragraphs 8 and 9), adding on the merits that the shop was not received without consideration (paragraph 11).

Limitation. In Umiya Bhuvan CHS (22 September 2026), a society reopened for assessment year 2015-16 by a section 148 notice of 14 April 2022, the notice was held barred by limitation on the Revenue’s concession recorded in Rajeev Bansal for assessment year 2015-16 (paragraph 28), the merits being left open; the same point is available to members reopened for that year.

No transfer in the year. In Brij Mohan Ranbirsen Mehra (29 August 2025), a MIG member reopened on an Rs 8 lakh “part corpus” payment on the footing that the development agreement year was the year of transfer, the Tribunal (single Member) held, following Bharat Jayantilal Patel v. DCIT (Bombay High Court, 2023, the Revenue’s special leave petition dismissed by the Supreme Court, both known only as recorded in the order), that a developer in possession as licensee is not in possession in part performance, and declared the reopening “void ab initio” (paragraph 20); the member had also denied receiving the Rs 8 lakh.

The 2025 Act. Section 280 re-enacts section 148, and section 281 re-enacts section 148A: a show-cause notice accompanied by the information, the member’s reply, and an order with the prior approval of the specified authority (who, under section 284, is an Additional or Joint Commissioner or Director). Section 281(4) disapplies the procedure in more cases than section 148A(4) did, adding directions of the Approving Panel and findings in appellate and court orders. Section 536(2)(c) keeps the 1961 Act for proceedings, including reassessment, “in respect of any tax year beginning before the 1st April, 2026”, so a member reopened now for an earlier year is reopened under section 147 and sections 148 to 151 of the 1961 Act.

On receiving a section 148A notice. Attach the document behind the AIS entry and explain it; check who approved the order (from 1 September 2024 an Additional or Joint Commissioner or Director under section 151), and check the year, because a document registered in one year may record a transaction that happened, if at all, in another.

Penalty: under-reporting, misreporting and the defence of disclosure

The 1961 Act. Under section 270A, a person has under-reported his income where the income assessed exceeds the income determined on processing the return, where no return was filed (or one was filed for the first time in response to a section 148 notice) and the income assessed exceeds the maximum amount not chargeable to tax, or where the income reassessed exceeds what was assessed before. The penalty is fifty per cent of the tax on the under-reported income (sub-section (7)), or two hundred per cent where the under-reporting is “in consequence of any misreporting” (sub-section (8)); the cases of misreporting in sub-section (9) begin with “misrepresentation or suppression of facts”. Sub-section (6)(a) excludes “the amount of income in respect of which the assessee offers an explanation and the Assessing Officer … is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered”. For a member who disclosed the receipt, that exclusion is the answer; for one who said nothing, the Revenue will argue suppression.

The orders. In Haresh Damji Shah (ITA 1934/Mum/2026, 19 May 2026), a tenant who surrendered his tenancy under a permanent alternative accommodation agreement, the Assessing Officer levied a penalty of Rs 1,26,80,260, which the Tribunal records as levied “under section 270A(9) of the Act for misreporting of income” (paragraph 7; the order does not state the rate), on a section 56(2)(x) addition of Rs 1,82,96,708 that took in the flat and the hardship compensation; the quantum additions having been deleted on 13 October 2025, the Tribunal quashed the penalty because “where the foundation addition does not survive, the superstructure of penalty automatically falls” (paragraph 9). In a separate appeal by Urmila Dhelia for assessment year 2018-19 (ITA 4204/Mum/2025, 20 January 2026), a section 270A penalty of Rs 1,18,144 imposed “on plea of mis-reported income” was quashed because neither the notice nor the penalty order specified the limb of section 270A(9) invoked (paragraphs 5 and 6); the order does not say what the underlying addition was, so it is authority on the form of a misreporting penalty, not on redevelopment receipts. In Amitabha Sanyal (Kolkata, 13 March 2023) a landowner who had given his land for development was assessed on Rs 79,500 of rent the developer paid for his alternative accommodation; a section 271(1)(c) penalty of Rs 4,56,362 was deleted on the footing that no penalty could be imposed on that rent. In Ajay Parasmal Kothari a section 271(1)(c) penalty was under appeal when the Tribunal, condoning a delay of 1,566 days, allowed the quantum appeal.

Immunity. Section 270AA, whose sub-sections (1) to (3A) were substituted by the Finance Act, 2026 from 1 March 2026, gives a member who accepts an assessment, pays the tax and interest in time, files no appeal and applies within one month from the end of the month of the order immunity from penalty under section 270A and from prosecution under sections 276C and 276CC. Since that substitution, immunity is available even where the penalty is for misreporting, on paying additional income-tax of one hundred per cent of the tax on the under-reported income, and the new sub-section (1) also speaks of waiver where penalty has already been levied. No immunity or waiver is granted where prosecution proceedings under Chapter XXII have been initiated (sub-section (3A)). It suits a member with a small addition and no appetite for litigation.

An updated return in answer to the notice. From 1 March 2026 the Act contemplates an updated return “filed in pursuance of a notice issued under section 148 within the period specified in the said notice”: section 140B(3A) adds a further ten per cent of the tax and interest to the usual additional income-tax, and section 270A(11A) provides that income on which that additional tax is paid “shall not form the basis of imposition of penalty”. It closes penalty exposure for a member who decides that a small receipt is not worth a fight. In the 2025 Act the same rules are section 267(5)(ii), for a return filed in pursuance of a notice under section 280, and section 439(13A), both from 1 April 2026. Section 139(8A), as amended to allow such a return, has its own time limits; check them before filing.

Unexplained investment. Where the addition is not for the receipt but for a payment the member made, for instance an unrecorded payment for extra area found in a developer’s papers, the provisions are sections 68 to 69B. Under the 1961 Act the special rate in section 115BBE is sixty per cent from assessment year 2017-18, with a penalty of ten per cent of that tax under section 271AAC, which excludes section 270A; for assessment years 2013-14 to 2016-17 the rate was thirty per cent and section 271AAC did not exist; before assessment year 2013-14 there was no special rate at all. Part 4 deals with on-money.

The 2025 Act. Section 439 re-enacts section 270A, with fifty per cent in sub-section (9), two hundred per cent in (10), and the misreporting cases in (11). That list now has a clause (g), “income referred to in section 195(1)(b)”, inserted by the Finance Act, 2026 (Act No. 4 of 2026) from 1 April 2026, so an addition under sections 102 to 106 that the member did not show in his return is misreporting by definition. The same Act cut the rate in section 195 of the 2025 Act (the counterpart of section 115BBE, not of the 1961 withholding section) from sixty to thirty per cent, omitted section 443 (the ten per cent penalty that had displaced section 439), and substituted section 440, which allows waiver of a clause (g) penalty on additional income-tax of 120 per cent of the tax, against 100 per cent for other misreporting. By section 536(2)(d), penalty for any tax year beginning before 1 April 2026 may be imposed under the 1961 Act as if the 2025 Act had not been enacted.

Disclosing the receipts in the return

Show the receipt. A member who reports the receipts as non-taxable, with a note identifying the agreement, the amounts and the basis (Pendharkar and Urmila Dhelia for the lump sum, Kothari and Walavalkar for the rent), has disclosed all the material facts for section 270A(6)(a). For returns up to assessment year 2025-26, Schedule EI carried an “Others” row for exempt income. For assessment year 2026-27, the e-filing schema is reported to have removed the general “Other exempt income” field and added an option for “Receipts not in the nature of income” (as reported in July 2026; the schema itself has not been verified). A capital receipt belongs there if the utility offers it; if not, disclose by a covering letter with the return and by the response to the AIS entry, kept on file.

Match the AIS and Form 26AS. Make the return consistent with the TDS route chosen. If the AIS shows a registered agreement at nil consideration, keep the agreement and an explanation ready; that entry is what a section 148A notice will attach.

Decide the cost-reduction question deliberately. A member who later sells the new flat must decide whether to reduce the cost by the hardship compensation. If he does not, he should say so in a note, citing the absence of any provision in sections 48, 49 or 55 for the reduction and the fact that Bangia’s sentence was an unargued opinion to which counsel agreed, and recording that Rajnikant Shroff directs the reduction, so that the position is disclosed and the bona fide explanation in section 270A(6)(a) is available if an Assessing Officer applies Shroff. If he reduces it, he should check whether doing so gives up the indexation comparison, as the worked example shows it may. A member who offered the receipt as capital gains when he received it, as in Borkar, should not also reduce the cost later.

In Gaurang S. Desai (Gujarat High Court, 14 July 2008) the Court declined to interfere with section 54F allowed by the appellate authorities to members who filed returns only after reassessment notices, giving no reasons on the Revenue’s objection that the claim came too late (Part 1 sets out the order); that is no substitute for disclosure in the original return.

Home loans and house property during reconstruction

No decision applying these provisions to a redevelopment member was traced. What follows is a reading of the text.

Interest under section 24(b). Section 24(b) allows “where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital”. On the continuation view the property is the same throughout and the old loan’s interest stays deductible; on the exchange view the Revenue may say a loan for an asset that no longer exists is not capital borrowed for the new one.

The Rs 2 lakh limit and the five-year condition. For a house whose annual value is nil under section 23(2), the deduction is capped at Rs 30,000, rising to Rs 2 lakh where the property “is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed”. A member who borrows for extra area and whose flat is late drops to Rs 30,000. Interest for the period before the year of acquisition or construction is allowed in five equal instalments under the Explanation.

No double count. From assessment year 2024-25, the proviso to section 48(ii) inserted by the Finance Act, 2023 excludes from cost “the deductions claimed on the amount of interest under clause (b) of section 24 or under the provisions of Chapter VIA”.

Annual value while the building is down. Section 23(2), as substituted by the Finance Act, 2025 with effect from 1 April 2025 (that is, from assessment year 2025-26), takes the annual value as nil where the owner “cannot actually occupy it due to any reason”, which describes a displaced member; whether a demolished flat is a house at all is a section 22 question, but either way the value is nil. For earlier assessment years the second limb covered only an owner kept away by employment, business or profession elsewhere. Section 23(3)(b) takes the nil value away where “any other benefit therefrom is derived by the owner”, and an Assessing Officer could say that transit rent is such a benefit. The answer is that the payment comes from the developer for the member’s displacement, not from the house, and that once the building is demolished there is no house to yield a benefit or an annual value.

Two units for one. Section 23(4) limits the nil value: where the property within sub-section (2) “consists of more than two houses”, only two, chosen by the assessee, take a nil annual value, and the annual value of the rest is determined “as if such house or houses had been let”. A member who ends a redevelopment with two new flats for one old flat, and who already owns another house, has three; one is taxed on a notional rent even if it stands empty, and a flat kept for a child or for later sale is not outside the head. Interest for all the nil-value houses together is capped at Rs 2 lakh by the second proviso to section 24(b) and by the last proviso, which limits “the aggregate of the amounts of deduction under the first and second provisos” to two lakh rupees. The member chooses, year by year, which two are self-occupied.

Who is the owner. Section 27(iii) deems a society member to whom a building or part of it is allotted under the society’s house building scheme to be its owner for sections 22 to 26, so the member, not the society, claims the interest. It does not decide ownership for capital gains.

Section 80C and the reversal. Section 80C(2)(xviii) allows, within Rs 1,50,000, instalments due to a co-operative society “towards the cost of the house property allotted to him” (clause (b)), repayment of a housing loan from the listed lenders (clause (c)), and stamp duty and registration (clause (d)). Clause (b) fits instalments to the society in a self-redevelopment; a payment to a private developer for extra area fits neither clause (a) nor (b), leaving only loan repayment and stamp duty. Section 80C(5)(iii) reverses every deduction taken if the member “transfers the house property … before the expiry of five years from the end of the financial year in which possession of such property is obtained by him”. If the society signs within five years of his possession, the Revenue may call the redevelopment a transfer, and section 80C(8)(viii) widens “transfer” for this purpose to the transactions in section 269UA(f), which include membership and part-performance transactions; the continuation view answers it, the exchange view invites it. In the 2025 Act the same rules are in section 123 and Schedule XV (paragraph 3(a)(ii) for society instalments; see the concordance). By section 536(2)(h), a reversal after 1 April 2026 of a deduction allowed earlier is taxed in the year of the violation.

The new tax regime. A member in the regime under section 115BAC, which is the default from assessment year 2024-25 unless he opts out under sub-section (6), gets neither deduction. Section 115BAC(2)(i) computes income without the section 24(b) deduction “in respect of the property referred to in sub-section (2) of section 23”, that is, the self-occupied or nil-value house, and without any Chapter VI-A deduction other than sections 80CCD(2), 80CCH(2) and 80JJAA, which shuts out section 80C. Interest on a let-out or deemed-let property is still deductible, but a house property loss cannot be set off against another head (section 115BAC(2)(ii)(b)). For a displaced member whose flat is down, the interest is simply lost in the new regime, so the choice of regime for the redevelopment years is worth computing. The 2025 Act repeats the bar: section 202(2) excludes section 22(1)(b) for properties within section 21(6) and every Chapter VIII deduction except sections 124(1), 124(2), 125(2) and 146, and section 123 is in Chapter VIII.

Gujarat: what the record shows

No decision of the Ahmedabad, Surat or Rajkot Bench, or of the Gujarat High Court, on hardship compensation, corpus, transit rent or delay compensation paid to a member of a Gujarat housing society was traced. The Ahmedabad Bench should follow the Mumbai line on like facts or refer a disagreement to a Special Bench. What Gujarat does have is this.

A Surat Bench order on a Mumbai flat. In Ishwar Vithal Navadia v. ITO, ITA 297/SRT/2025, assessment year 2013-14, decided on 30 October 2025, the Surat Bench held Rs 10,91,090 received from Kalpataru for an old flat in a Juhu society a capital receipt, setting aside a Commissioner (Appeals) who had held it was received for extinguishing rights and had rejected Rajnikant Shroff. It followed its own order in the assessee’s case for assessment year 2011-12, which had held corpus for hardship a capital receipt “simplicitor”. Shobhana Trivedi, also a Surat order on a Mumbai flat, is discussed under instalments.

The Gujarat High Court on retracted statements and on reopening. Kailashben Manharlal Chokshi v. CIT (Income Tax Reference 111 of 1997, 1 September 2008) held that “merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission”, which a member will need if a developer’s search produces a statement that cash was paid to members. Bharatkumar Dinubhai Patel (28 August 2023), Mukundbhai Manubhai Patel (18 August 2025) and PCIT v. Navinchandra N. Patel (6 August 2026) quashed, or upheld the quashing of, reopenings of landowners under development agreements under the pre-2021 procedure; they do not concern society members.

The Gujarat High Court on mutuality. In CIT v. Adarsh Co-operative Housing Society Ltd (26 October 1994), the High Court held that a plot-holders’ society’s receipts from members on allotment and on transfer of leases were within mutuality; it says nothing about developers, but it is Gujarat authority that a housing society’s surplus belongs in substance to its members.

Open questions in Part 2, argued both ways

1. Is hardship compensation income? For the member: it compensates displacement, is referable to a capital asset and is outside section 2(24); a consent clause does not make it transfer consideration (Pendharkar paragraph 11), and the label does not matter (Viren Vashi). For the Revenue: it is a quid pro quo under section 56(1) (Urmila Dhelia, Commissioner (Appeals)), has “nothing to do with capital value enhancement” (Upinder Kaur, Assessing Officer), and is a sum received without consideration under section 56(2)(x)(a) (Phadkar, the Revenue’s case as recorded). Consistently decided for the member at Tribunal level, mostly by following earlier orders rather than by fresh reasoning; no High Court decision in a tax appeal; no Revenue win traced, though Borkar shows the receipt can be taxed as capital gains where the member chooses that route.

2. Does it reduce the cost of the flat on a later sale? For the member: no provision in sections 48, 49 or 55 reduces cost by a receipt that is not consideration for the asset; section 51 applies to money retained from a “previous occasion” of negotiations, which the proviso and section 56(2)(ix) show means negotiations that failed (section 81 of the 2025 Act is the same); Bangia was an unargued opinion to which counsel agreed and Kunnama an observation. For the Revenue: Shroff is a Bench direction “in terms of section 51”, favourable orders from Lawrence Rebello to Pendharkar quote the sentence without disapproval, and without a reduction the receipt is never taxed. Open; the worked example puts the cost at about 18 to 20 per cent of the receipt.

3. Is transit rent taxable where it replaces rent the member used to earn from the old flat? For the member: it compensates the owner for loss of use, whoever would have used the flat, and transit rent is not rent (Sarfaraz paragraph 10). For the Revenue: a receipt that replaces income should be taxed as that income. Untested.

4. Is delay compensation capital, interest, or a reduction of cost? For the member: it is “akin to” hardship compensation (Vijay Kumar Bhan paragraph 11), it is not interest because there is no debt (WBHIDCO), section 56(2)(viii) reaches only interest on compensation of the section 145B kind, and tax deducted under section 194A does not fix its character (Julka). For the Revenue: section 2(28A) includes interest on a debt incurred “including a … claim”, so a sum computed at a rate on a contractual entitlement is arguably interest taxable under section 56(1), WBHIDCO being a payer-side ruling; compensation for breach differs in kind from hardship (Upinder Kaur, Departmental Representative); and a payment adjusted against the price of extra area reduces cost. No redevelopment order reasons separately on it; the flat-buyer line supports the member.

5. Can a member claim credit and a refund for tax deducted on a receipt he treats as capital? For the member: the tax came out of his money, rule 37BA(1) gives credit to the payee, and section 198 does not turn a capital receipt into income. For the Revenue: section 198 deems the tax to be income received, rule 37BA(3)(i) gives credit only for the year in which the income is assessable, the claim is “self contradictory” (the Commissioner (Appeals) in Coastal Gujarat Power, whose order the Tribunal set aside on the character of the receipt without dealing with the point), and Ganga Appa’s remedy lies against the developer. Untested.

6. Can a registered agreement at nil consideration found in the AIS support an addition under section 69 or section 56(2)(x)? For the member: the flat is received in exchange (Pitale), there is no receipt before possession (Snehalata Dhayagude), a payment proved from bank statements is not unexplained (Paresh Panday), and an AIS line proves nothing about the transaction. For the Revenue: the stamp duty value is a statutory measure, the agreement is registered, and the member must prove the rights he surrendered (Naresh Bansilal Jain, remanded). The member has won except where the prior right was unproved or rested on a booking with a different builder (June Alice Fernandes); see Part 1.

7. Is a member who did not disclose the receipts exposed to penalty for misreporting? For the member: no addition on these receipts has survived appeal, penalty falls with it (Haresh Damji Shah), and an explanation backed by more than thirty Tribunal orders is bona fide under section 270A(6)(a). For the Revenue: silence about a known receipt, while relying on a contested characterisation, is “suppression of facts” under section 270A(9)(a). No penalty has been sustained in any order read; disclosure removes the argument.

8. Is a premium paid only to a holdout member hardship compensation? For the member: consent to the redevelopment of his own building is an incident of ownership, and payment for it is referable to the capital asset, as Pendharkar and Viren Vashi held for consent payments. For the Revenue: those cases concerned a uniform entitlement; a premium to one member is the price of his consent, taxable as income from other sources or as capital gains on “any other right” at nil cost under section 55(2)(a) as amended from 1 April 2024. Untested.

9. Is hardship compensation kept after a project aborts taxable under section 56(2)(ix)? For the member: it compensated displacement under a concluded agreement, was not received “in the course of negotiations for transfer”, and nothing was forfeited. For the Revenue: the agreement contemplated the member’s surrender of his flat, the transfer never happened, and the clause reaches a sum received “as an advance or otherwise”; if not taxed, section 51 reduces cost. Undecided.

A member’s checklist

1. Read every payment clause. Note what each payment is called and when it is due.
2. Route payments to the member. Ask for payment directly into the member’s account, with the agreement naming him. Keep the society’s resolution allocating any money paid through it.
3. Avoid the word “rent”. Prefer “compensation for displacement”, resist a covenant to deduct tax, and do not let delay compensation be computed as interest.
4. Disclose, do not omit. Show the receipts as non-taxable, with a note naming the agreement and the basis.
5. Choose one TDS route. Recover deducted tax from the developer (Ganga Appa Mhaskar) or claim credit and a refund, never both, and keep the paper trail.
6. Keep the transit paperwork. Keep rent agreements, receipts and deposit terms for the transit flat; Bhimani is still on the books.
7. Decide on a let-out flat. Decide before filing how to treat transit rent, offering anything only without prejudice and not as house property.
8. Keep the payment schedule. If only part of an entitlement is received in a year, record why the rest is not offered.
9. Settle the cost question before a sale. Run the computation with and without the cost reduction, decide, and disclose the decision.
10. Answer a section 148A notice on the papers. Check the document behind the AIS entry, the approving authority, the year and, for search material, the date of the search. Weigh an updated return under section 140B(3A) against the fight.
11. Check the home loan. Check the regime first, because section 115BAC bars the self-occupied interest deduction and section 80C; then the five-year condition for the Rs 2 lakh limit, the section 23(4) count, and any section 80C reversal.
12. Read Part 4 first in special cases. A non-resident, a holdout offered a premium, or a society keeping corpus should read Part 4 before signing.

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

Subject	Income-tax Act, 1961	Income-tax Act, 2025
Definition of interest	section 2(28A)	section 2(59)
Computation	section 48	section 72(1); indexed cost for the comparison, section 72(2)
Land or building acquired before 23 July 2024	section 112(1)(a), second proviso	section 197(3), E = A - B
Advance money received	section 51	section 81
Cost of intangibles, tenancy rights and “any other right”	section 55(2)(a)	section 90(3) (opening words and clause (c) read)
Forfeited advance	section 56(2)(ix)	section 92(2)(h)
Receipt of money or property	section 56(2)(x)	section 92(2)(m); exclusions section 92(3); agreement date and valuation section 92(4)
Interest on compensation	section 56(2)(viii)	section 92(2)(i)
Fifty per cent deduction	section 57(iv)	section 93(1)(f)
Year of receipt of interest on compensation	section 145B(1)	section 278(1)
Nil annual value	section 23(2)	section 21(6)
Other benefit derived by the owner	section 23(3)(b)	section 21(7)(b)
Two houses	section 23(4)	section 21(7)(a)
Interest, pre-construction interest and limits	section 24(b)	section 22(1)(b), (c) and (2)
Co-operative society member as owner	section 27(iii)	section 25(c)
Housing payments and reversal	section 80C(2)(xviii), (5)	section 123 with Schedule XV, paragraph 1(r), paragraph 3, paragraph 4 (Table serial 3)
“Transfer” includes section 269UA(f) transactions	section 80C(8)(viii)	Schedule XV, para 6(h)
New regime exclusions	section 115BAC(2)	section 202(2)
Rent	section 194-I	section 393(1), Table serial 2(i), (ii) (payment column read)
Immovable property	section 194-IA	section 393(1), Table serial 3(i) (payment column read)
Specified agreement	section 194-IC	section 393(1), Table serial 3(ii) (payment column read)
Interest	section 194A	section 393(1), Table serial 5(ii), 5(iii) (payment column read)
Non-residents	section 195	section 393(2), Table serial 17 (payment column read)
Credit to the deductee	rule 37BA(1) (Income-tax Rules, 1962)	rule 203(1)(a) (Income-tax Rules, 2026)
Year of credit	rule 37BA(3)(i)	rule 203(5), (6)(i)
Reassessment notice	section 148	section 280
Procedure before notice	section 148A	section 281
Specified authority (as substituted from 1 September 2024)	section 151	section 284
Penalty for under-reporting and misreporting	section 270A	section 439(1), (9), (10), (11); (11)(g) inserted by Act No. 4 of 2026 from 1 April 2026
Immunity	section 270AA (sub-sections (1) to (3A) substituted by Act No. 4 of 2026 from 1 March 2026)	section 440 (substituted by Act No. 4 of 2026 from 1 April 2026; “Waiver of penalty and immunity from prosecution”; 100 or 120 per cent additional tax)
Ten per cent penalty on unexplained income	section 271AAC	section 443 (omitted by Act No. 4 of 2026 from 1 April 2026)
Cash credits	section 68	section 102 (sub-section (1) read)
Unexplained investments	section 69 and section 69B	section 103
Unexplained money and assets	section 69A and section 69B	section 104 (sub-section (1) read)
Special rate on unexplained income	section 115BBE	section 195 (30 per cent from 1 April 2026)
Statement of financial transactions	section 285BA(1), (3)	section 508 (read in summary only)
Updated return after a reassessment notice	section 140B(3A)	section 267(5)(ii)
No penalty on income covered by that return	section 270A(11A)	section 439(13A)
Repeal and savings	(not applicable)	section 536(1), (2)(a) to (h) and (j)

The 2025 Act references were checked against that Act’s text on the Income Tax Department’s website; where only part of a provision was checked, the brackets say so.

Continue with Part 1: transfer, cost and holding period, Part 3: cash exits, resale and sections 54 and 54F and Part 4: tenants, slum dwellers, shops, non-residents and the society. For the developer’s side of the same payments, read Part 2 of the developer series.

This note is general commentary on the law as at 22 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.