Redevelopment and capital gains: is the flat owner taxed on his new flat?

This is Part 1 of a four-part study of how income tax treats the existing occupants of a building that is redeveloped: whether the member transfers anything, when, at what value, and the cost and holding period of the new flat and any extra area. Part 2 covers hardship compensation, corpus, transit rent, delay compensation, tax deduction at source and reporting; Part 3 cash exits, sale of rights, resale of the new flat and sections 54 and 54F; Part 4 tenants, slum dwellers, shops, companies, non-residents and the society itself. The developer’s side is in a separate three-part series.

A flat owner whose building is redeveloped signs two or three documents, moves out for about three years and moves back into a larger flat without paying for it. Neither the Income-tax Act, 1961 nor the Income-tax Act, 2025, in force from 1 April 2026, has a provision written for that sequence. Two readings compete, both with Mumbai Tribunal support, and the choice decides whether there is a taxable event, in which year, what the new flat costs and whether it is long-term when sold.

The most recent decision, and the one with the fullest reasoning on the holding period, is for the member. In Rajesh Shamji Furia v. ITO (16 July 2026) the Mumbai Tribunal held that the member’s rights “merely undergo substitution from the old structure to the newly constructed premises”: no transfer on surrender, the old cost carried over, and a holding period running at least from the development agreement. The older line, which treats the surrender as an exchange with section 54 absorbing the gain, has not been overruled and is sometimes better for the member, as the worked examples show.

For an individual who gives his bungalow or plot to a developer for flats, the Ahmedabad pattern, section 45(5A) moves the charge to the year of the completion certificate; whether a society member’s agreement can be a specified agreement is undecided.

Key points

• Rajesh Shamji Furia (Mumbai, 16 July 2026) holds the new flat a continuation of the old asset, and leaves open whether the holding runs from the original purchase.
• Dilip P. Ahuja (2014) and Harisarvottam Lambus (2013) treat the surrender as an exchange, with the new flat’s value as consideration and section 54 sheltering the gain.
• Free extra area within the entitlement has been held outside section 56(2)(x) in Pitale, Dharmani and Bharat Samtani, though no High Court has tested it; purchased area is tested on its own.
• Section 45(5A) governs an individual or Hindu undivided family under a registered area-sharing agreement from assessment year 2018-19. The Patna High Court and the Bangalore Tribunal hold it prospective; the Orissa High Court in Kanak Bhanj Deo (special leave refused without reasons) let a pre-2017 agreement be taxed when the flats were received, nothing having been offered in the agreement year.
• For a resident individual or Hindu undivided family, land or building acquired before 23 July 2024 keeps the comparison with 20 per cent and indexation; anything acquired later does not, and a non-resident, a company, a firm or the society never has it.
• The new flat’s cost is the deemed consideration under section 45(5A) (stamp duty value plus any cash), the old cost on continuation, or the value given up on exchange; from assessment year 2024-25 the Revenue may say an entitlement is “any other right” with a nil cost, and no decision fixes the cost for an owner member.
• No Gujarat decision on a society member was traced; Gujarat authority concerns landowners and plot-holders.

What a member gives and what he gets: the deal map

What the member holds. In a Gujarat apartment building, usually a flat under a registered sale deed with an undivided share in the land. In a Mumbai tenant co-partnership society, shares and an occupancy right, the society holding land and building; Circular 9 of 25 March 1969 of the Central Board of Direct Taxes, as quoted in Colombia Co-operative Housing Society Ltd. v. ITO (22 December 2025, paragraph 7.1; Part 4), says that “the individual members should be regarded as the legal owners of the property in question”. In an Ahmedabad plot-holder society, the house, with the plot held through the society.

What the member receives. Same area, free, with cash covered in Part 2. Extra area, free: 30 per cent in Furia, 56 per cent in Ranjana Hemant Pendharkar, 35 per cent plus 120 square feet in Dharmani. Extra area, bought: 55 square feet for Rs 6,00,000 in Furia, 544.19 square feet at Rs 45,000 a square foot in Bharat Kishin Samtani. Two flats for one or one for two, a flat in another wing or phase, a different use and a share in revenue or TDR are discussed after extra area. Parking allotted with the flat is part of the same bargain (Haresh Damji Shah, a tenant’s case, 13 October 2025, paragraph 8; Part 4).

The documents: development and alternate accommodation agreements

The development agreement grants the developer, on the members’ resolution, the right to demolish, rebuild and sell the surplus area. In Gujarat, section 41A of the Gujarat Ownership Flats Act, 1973 allows redevelopment with the consent of not less than 75 per cent of the flat owners where twenty-five years have passed from the development permission or the building has been declared ruinous or dangerous, and rule 23 of the 2019 rules prescribes the agreement’s contents, including each member’s carpet area, corpus and registration. Mumbai society redevelopment runs under directions under section 79A of the Maharashtra Co-operative Societies Act, 1960. Both are described in the developer series, Part 1; for the member, the point is that the Gujarat agreement is always registered.

The member’s own permanent alternate accommodation agreement gives him an identified new flat in place of the old. It is often registered at nil consideration, which generates section 56(2)(x) and section 69 additions: an Index-II extract showing a flat of stated stamp duty value conveyed for nothing. A supplementary agreement may follow for bought area. In Pushpa S. Amin v. ITO (ITA 3363/Mum/2026, 17 August 2026, paragraph 9), not a redevelopment case, an addition of Rs 25,51,474 on a supplementary agreement said to confer free parking was deleted for want of any “fresh immovable property”.

Three drafting points recur. Is the new flat given in lieu of or in exchange for the old? (In Pitale the registered agreement gave it “in lieu of the old flat surrendered”, as the Bench described it, and the Bench built on that.) When do rights in the old flat cease: on signing, on vacating, or on delivery of the new flat? (Jigar Sevantilal Shah turned on a clause deferring surrender to delivery.) Is extra area priced separately, with a date and a payment? (Bharat Samtani turned on a cheque paid in February 2016, long before the registered agreement.)

Who transfers: the society, the member, or both

The society grants the development rights, but the Mumbai Tribunal has held money and flats flowing to members to be theirs, not the society’s: in ITO v. RBI Employees Bhagvati Co-operative Housing Society Ltd. (ITA 3595/Mum/2025, 27 October 2025, paragraph 12) the society had signed “in the capacity of the representative of the flat owners/members”, as the Commissioner (Appeals) found and the Tribunal accepted, and in ITO v. The Borivali Ashwini Co-operative Housing Society (ITA 9287/Mum/2025, 11 May 2026, paragraph 13) the Tribunal followed it, recording that the consideration was “taxable in the hands of members and not the Appellant society” (Part 4).

That victory carries a cost for members. The Commissioner (Appeals) in RBI Employees Bhagvati had written, in a passage the Tribunal reproduced and did not disapprove, that “The Members are the real owners of old flats which were transferred to developer for exchange of new flats with more space.” A member who later says he transferred nothing argues against the premise on which his society was relieved, and the two files will be read together.

Continuation or exchange: is there a transfer at all?

The statutory definition

Section 2(47) of the 1961 Act includes in transfer “(i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein”; clause (v), possession allowed “in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882”; clause (vi), any transaction, including one “by way of becoming a member of, or acquiring shares in, a co-operative society”, “which has the effect of transferring, or enabling the enjoyment of, any immovable property”; and, by Explanation 2, “disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever”.

Section 2(109) of the Income-tax Act, 2025 re-orders the definition: part performance is clause (g), membership and enjoyment clause (f), and Explanation 2 is folded into clause (h), without the 1961 words “shall be deemed to have always included”. It also defines immovable property, as the 1961 Act did through section 269UA(d), in words placed after clause (h): item (i), land or a building, and “(ii) any rights in or with respect to any land or any building … which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of … a co-operative society … or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building”. A member’s right to a flat not yet built is therefore immovable property for clauses (f) and (g) where it arises from his membership or the development arrangement. The closing words limit the Revenue less than they seem to. They keep out of item (ii) rights arising from a sale, exchange or lease of the property itself, which are transfers under clause (a) in any event; the exchange view needs only clause (a) (“the sale, exchange or relinquishment of the asset”). Nor do they touch the enjoyment clause as applied to the old flat and the land, which are immovable property under item (i), defined to “include any rights therein”. Section 269UA(d) has the same structure, so nothing turns on the change of Act.

The continuation line: Furia and Urmila Jagdish Mehta

Rajesh Shamji Furia v. ITO, ITA 1672/Mum/2026, Mumbai Bench “D”, decided on 16 July 2026 for assessment year 2018-19, is the most recent decision and the one a member will lead with. A 510 square foot flat bought in December 2006 was redeveloped under a 2013 agreement giving each member 30 per cent more area “without any monetary consideration”; the new flat also included 185 square feet gifted by the assessee’s mother and 55 square feet bought for Rs 6,00,000, and was sold for Rs 1,95,48,000 eight days after the alternate accommodation agreement of 12 January 2018. The Assessing Officer taxed the assessee’s half share of the gain, Rs 80,14,500, as short-term, and the Commissioner (Appeals) found “two distinct taxable events”. The Tribunal reversed, holding at paragraph 10, in its own words:

“We are of the considered view that a redevelopment scheme does not result in extinguishment of the owner’s proprietary rights followed by acquisition of an altogether fresh capital asset. The ownership rights of an existing member continue throughout the redevelopment process and merely undergo substitution from the old structure to the newly constructed premises. The Permanent Alternate Accommodation Agreement neither creates ownership for the first time nor results in acquisition of an independent capital asset.”

At paragraph 15 it added that “each component” of the new flat, including the purchased and gifted areas, “emanated from pre-existing rights under the redevelopment arrangement and cannot be dissected into separate capital assets”.

The Bench left open whether the holding runs from 2006 or 2013, as “under either view the asset qualifies as a long-term capital asset” (paragraph 17). The Assessing Officer had conceded section 56(2)(x) (paragraphs 2 and 9). The Bench did not analyse section 2(47)(v) or (vi). And paragraph 15 treats the 55 square feet bought for Rs 6,00,000 as originating under the 2013 agreement although, on the Assessing Officer’s facts, it was paid for and conveyed later; a Revenue appeal would attack that first. No appeal has been traced, though the time for one may not have run.

Mrs. Urmila Jagdish Mehta v. ACIT, ITA 5944/Mum/2024, decided on 29 December 2025 for assessment year 2014-15, is the decision Furia followed. A flat bought in 1988 was redeveloped under an allotment letter of 2006 and an alternate accommodation agreement of 2010, and sold in December 2013. The Bench held at paragraph 16 that the rights “crystallized pursuant to the allotment letter dated 24.11.2006 and the agreement dated 27.12.2010” and that the arrangement “was not a fresh purchase in isolation but was a continuation of ownership rights flowing from the original flat held since 1988”. It counted the holding from allotment and crystallisation, not from 1988.

The exchange line: Dilip Ahuja, Harisarvottam Lambus and Pitale

Dilip P. Ahuja v. ITO, ITA 6419/Mum/2012, decided on 10 October 2014 for assessment year 2009-10, states the opposite view most clearly. The member received Rs 11,00,000, rent compensation and 210 square feet of extra area; the Tribunal held at paragraph 9 that “the value of new flat and the compensation received is to be considered as the sale consideration received on giving of old flat”, less the old flat’s indexed cost, and that “Since the new flat is obtained on transfer of old flat, the assessee’s claim for deduction u/s 54 of the Act is also justified”. In Harisarvottam N.R. Lambus v. ITO, ITA 7578/Mum/2011, decided on 26 March 2013, where 154 square feet of additional area had been taxed at a stamp duty value of Rs 15,49,200, the Tribunal held that “the long term capital gain cannot be charged separately on the additional area received by the assessee, as that is a part of total consideration received in the transaction”, and allowed section 54 against the new flat’s value.

Anil Dattaram Pitale v. ITO, ITA 465/Mum/2025, decided on 17 March 2025, is cited as the root of the section 56(2)(x) line, but its own characterisation is exchange: “it is a case of extinguishment of old flat and in lieu thereof, the assessee has got new flat” (paragraph 4), and “At the most, this transaction may attract the provisions relating to capital gains, in which case, the assessee should be entitled for deduction of cost of new flat u/s 54 of the Act” (paragraph 5). Pitale and Furia agree that section 56(2)(x) does not apply and disagree on whether there is a transfer.

ITO v. Divyesh Ramniklal Muni, ITA 2879/Mum/2025, decided on 28 October 2025, shows the member choosing exchange: he returned the surrender of his two old flats as a transfer and claimed section 54 of Rs 4,50,19,333 against the new flats; the Bench recorded “the admittedly accepted position that there is an exchange of capital asset on surrender of old premises” (paragraph 4), and, relying on Hilla J.B. Wadia, upheld the Commissioner (Appeals)’ direction to allow section 54 for the Rs 60,13,293 paid for 205 square feet of added area (paragraphs 5 to 5.2). The order does not say in terms how much of the larger claim was finally allowed.

The fullest statement of the Revenue’s exchange theory against an owner is the Commissioner (Appeals)’ reasoning in Upinder Kaur Khalsa Rao v. ITO (ITA 3670/Mum/2023, 4 March 2024) (Tribunal’s paragraph 3): “There is clearly an extinguishment of rights of the assessee and exchange/transfer of the flat”, and “Section 2 (47) of the Act is attracted”; and because “the appellant got the flat in exchange of her old flat”, the argument that no cost was involved was “not acceptable”. The Tribunal decided the hardship addition on other grounds, so that reasoning stands unanswered rather than rejected.

The Supreme Court on extinguishment

The Revenue’s best general authority is CIT v. Mrs. Grace Collis (Supreme Court, 23 February 2001, (2001) 248 ITR 323): “the expression does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer”. A member whose flat is demolished, leaving rights in a flat not yet built, has on that reading suffered exactly that. Kartikeya V. Sarabhai v. CIT ((1997) 228 ITR 163) held a reduction in the face value of preference shares a transfer although the holder remained a shareholder, as a member remains a member while his structure goes and his share in the land is diluted.

The member answers that both decisions concern an asset replaced by a different one. Parliament gave amalgamation an exemption in section 47(vii), a cost rule and a holding-period rule, and nothing comparable for redevelopment. That silence can be read either way: Parliament knows how to provide continuity, and without such a provision the member’s continuity rests on characterisation alone.

Sanjeev Lal v. CIT ((2014) 365 ITR 389) helps both sides: “if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred”, which the Revenue will apply to a member’s signature; but the Court stressed the “peculiar facts” (an injunction), and the Gujarat High Court in Ushaben Jayantilal Sodhan (1 May 2018, paragraphs 19 and 20) read it as laying down no general rule.

Part performance and enabling enjoyment: Balbir Singh Maini

The Bombay High Court in Chaturbhuj Dwarkadas Kapadia v. CIT (13 February 2003, (2003) 260 ITR 491) held that in development agreements “the year of chargeability is the year in which the contract is executed. This is in view of Section 2(47)(v) of the Act” (paragraph 8), where “the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer” (paragraph 9).

CIT v. Balbir Singh Maini (Supreme Court, Civil Appeal 15619 of 2017, 4 October 2017), where the respondents were members of a co-operative society, is the member’s answer. At paragraph 20: “if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A”, so an unregistered agreement is no section 2(47)(v) transfer. At paragraph 22, “enabling the enjoyment of” in clause (vi) means enjoyment “as a purported owner”, and at paragraph 23 the clause is not attracted where “the owner continues to be the owner throughout the agreement” and “possession alone is given under the agreement, and that too for a specific purpose - the purpose being to develop the property”. A third ground (paragraphs 24 to 28) was that, the agreement being unperformed, no right to the consideration had accrued, so no gain could be charged.

For a Gujarat member, whose agreement is registered under rule 23, the registration limb rarely helps, but the enjoyment limb may: a member who hands over his keys for demolition lets a licensee rebuild his flat, not a purported owner enjoy it. The Revenue’s reply is that a developer who demolishes the building, sells the free-sale area on the members’ land and keeps the price does more than build as a licensee, and that Kapadia asks whether the contract, read as a whole, passes complete control over the property. The part-performance limb can still help on a different footing. The Mumbai Tribunal in Brij Mohan Ranbirsen Mehra v. ITO (ITA 4972/Mum/2024, 29 August 2025, assessment year 2011-12) quashed a reopening of a member that had applied section 2(47)(v) and section 50C in the year of the society’s agreement, because a developer in possession as licensee is not in possession under section 53A (paragraph 20); it did not discuss clause (vi). The single Member followed the Bombay High Court in Bharat Jayantilal Patel v. DCIT ((2023) 149 taxmann.com 290, known here only as reproduced at paragraph 18), which applied Seshasayee Steels; the Revenue’s special leave petition was dismissed (paragraph 19). The Revenue will answer that this is a single-Member order on a reopening, and that the licensee reasoning depends on the agreement: a registered agreement under which the member hands over possession in part performance, rather than a bare licence to enter and build, is outside it.

Choosing between the lines

The two lines cannot both be right, but a member chooses on his facts. Continuation is stronger where the new flat is in the same building on the same land, the agreement calls it a substitute for the old, the entitlement was fixed by the development agreement, and only area changes hands; it is weaker where substantial cash is also paid, or the new flat is elsewhere. A civil court’s words give the member indirect support: in Vaswani Projects Pvt. Ltd. v. Utsahi Maratha Mandal CHS (3 July 2026, paragraph 44) the Bombay High Court said that executing a permanent alternate accommodation agreement “does not decide ownership or extinguish any legal right”, though it said so to protect pending title disputes (Part 3 sets out the order). The Revenue will answer that section 2(47) reaches extinguishment, enjoyment and part performance without any change in civil ownership.

The exchange line is not necessarily worse. If section 54 is available the old flat’s gain is exempt and the new flat costs its value, which can make a later sale cheaper (worked example 1). The price is timing: the gain arises in the year of transfer, section 54 must be claimed for that year (or at the appellate stage, as Vasant Nagorao Barabde, ITA 5372/Mum/2024, 22 May 2025, allowed for section 54F), and a sale within three years claws it back.

What a member should not do is file one way and argue another. In Aparna Sandeep Kulkarni v. ITO (ITA 909/Mum/2025, 3 October 2025), not a redevelopment case, a flat bought in 2009 that, on the buyer’s account, the builder could not deliver was cancelled and on the same day the builder sold her a larger flat, adjusting the price already paid. The Tribunal held the agreements “independent transactions”, the adjustment “purely a financing mechanism” (paragraph 27), refused to read in a non-monetary consideration the second agreement did not record, confirming an addition of Rs 28,93,400 under section 56(2)(vii)(b) on the new flat (paragraph 28), and treated the cancellation as extinguishing her rights in the first flat, a transfer under section 2(47) on which any loss was to be computed (paragraph 29). The Revenue will use it against continuation wherever the new flat comes under a fresh document that does not say it replaces the old.

When the member transfers, if he does: the year of charge outside section 45(5A)

If there is a transfer and section 45(5A) does not apply, section 45(1) charges the gain in “the previous year in which the transfer took place”. There are five candidate dates.

The development agreement. The contract-date approach of Kapadia was applied, without citing it, by the Gujarat High Court in Jayantilal C. Desai v. ACIT (Tax Appeal 2294 of 2009, order of 11 April 2011), where the owner had handed over possession and also “surrendered all the rights in the land such as right to develop, right to accept members, to decide the price” (paragraph 11), and Kapadia itself was approved in CIT v. Swastik Engg. Mfg. Co. Pvt. Ltd. (Tax Appeal 1151 of 2014, 1 December 2014), where the Court declined to disturb the Tribunal’s application of it in a block assessment. A Mumbai society member surrenders nothing of that kind; there the society grants rights over its land and floor space, not his flat. A Gujarat apartment owner is differently placed, because he holds an undivided share in the land, and the Revenue will say that through the section 41A agreement he grants the right to develop his own share, as the owner did in Jayantilal Desai. His answer is that he keeps his flat until it is demolished, hands over possession only so that the building can be rebuilt (the licensee point above), takes a substitute for it, and does not part with the right to fix prices or admit members, the second of the two things on which Jayantilal turned.

The alternate accommodation agreement. The Commissioner (Appeals) in Furia said the member’s rights “crystallised only upon execution” of it; the Tribunal rejected that.

Vacating. In Ranjana Hemant Pendharkar v. ITO (ITA 7825/Mum/2025, 25 March 2026) the Assessing Officer treated vacating as the transfer. In Vasantha Narayan Poojari v. ITO (ITA 9174/Mum/2025, 18 March 2026) the Tribunal, having quashed the reassessment for want of sanction, added “for the sake of completeness” (paragraph 10) that the owner of premises in the society from which he ran a motor garage, having accepted the developer’s offer and vacated, “transferred the premises to the builder/developer in the year 2012 in terms with the offer letter dated 17.11.2011 of the builder”, and valued the shop he received in 2017 at 2011 and 2012 rates rather than 2017 rates, in his favour (paragraph 11): an alternative ground, but a recorded view. The date rested on his acceptance of that offer, not on vacating alone.

Delivery of the new flat. In Jigar Sevantilal Shah v. ITO (ITA 7418/Mum/2025, 17 April 2026) the agreement deemed the tenancy surrendered only when the new flat was handed over, and the Tribunal held that “the taxable event of capital gain qua the surrender of the tenancy rights if at all, can only happen” in that year (paragraph 9); Snehalata Heramb Dhayagude v. JAO (ITA 258/Mum/2026, 21 April 2026, paragraph 9.2) spoke of rights “in a state of suspension and not cessation”. Jigar Shah did not consider section 2(47)(v), although the tenant had handed over vacant possession on signing; that is the Revenue’s natural reply.

The completion certificate, under section 45(5A) only, discussed next.

Whether a member can be taxed in the transfer year on sums not yet received is unanswered at member level (Shobhana Dinesh Trivedi v. ACIT, ITAT Surat, 30 July 2025, was remanded undecided; Part 2). The Gujarat High Court’s statement in Chhaganlal Mulji Dholu v. JCIT (Special Civil Application 3406 of 2022, 25 November 2022, paragraph 6.1) that capital gain “is chargeable in the year of capital assessment even though the consideration may be realised earlier or later or or [sic] there may not be realisation at all” is the Revenue’s best text on the point. The member’s answer is Balbir Singh Maini’s third ground (paragraphs 24 to 28), that no gain can be charged where no right to the consideration has accrued. There the right depended on permissions that were never obtained and the whole development fell through, so the answer is strongest while the member’s right to payment is still conditional. Chhaganlal itself placed the transfer on the later sale deed (paragraphs 6 and 6.1).

The date also decides limitation: in Umiya Bhuvan CHS v. ITO (ITA 5442/M/2026, 22 September 2026) a society’s section 148 notice of 14 April 2022 for assessment year 2015-16 was quashed as time-barred.

Section 45(5A) and the Ahmedabad bungalow owner

What the section does

Section 45(5A) of the 1961 Act charges the gain of “an assessee, being an individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both, under a specified agreement” in the year “in which the certificate of completion for the whole or part of the project is issued by the competent authority”, the building plan authority. The full value of consideration is the stamp duty value of the owner’s share on that date, “as increased by any consideration received in cash or by a cheque or draft or by any other mode” (words substituted for “the consideration received in cash, if any” by the Finance Act, 2023 from 1 April 2024). A “specified agreement” is “a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash”.

The proviso withdraws the deferral where the owner “transfers his share in the project on or before the date of issue of the said certificate of completion”. Section 49(7) gives the share a cost equal to the deemed full value, and section 194-IC requires ten per cent deduction from any monetary consideration.

Many Ahmedabad agreements registered under the 1961 Act will reach completion after 1 April 2026, and section 536 of the 2025 Act has no clause written for them. Section 536(2)(j) deems “any agreement entered into … under any provision of the repealed Income-tax Act” to have been entered into under the corresponding provision, but a development agreement is a private contract, not one entered into under section 45(5A), so that clause is a doubtful footing. The charge then falls under section 67(14), whose definition of a specified agreement in section 67(15) does not ask under which Act the agreement was made; an owner who wants the 1961 computation can rely on section 536(2)(b), which saves any right or liability “acquired, accrued or incurred” under the repealed Act, and as the sub-sections reproduce section 45(5A) the figure is the same either way. Cash paid on or after 1 April 2026 suffers deduction at ten per cent under serial 3(ii) of the Table in section 393(1), which refers to the agreement “referred to in section 67(14)” and so turns on the same reading; cash paid earlier, under section 194-IC.

Commencement and prospectivity

The Explanatory Memorandum to the Finance Bill, 2017 applied the amendments “in relation to the assessment year 2018-19 and subsequent years”, to ease “the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer”; Circular 2 of 2018 (paragraphs 25.1 to 25.8) repeats this.

Most of the authority, though not all of it, holds the section prospective. The Patna High Court in Pankaj Kumar v. CIT (Civil Writ Jurisdiction Case 20926 of 2019 and batch, 12 May 2023) held that the sub-section “expressly stated to be effective from 01.04.2018 cannot be treated as retrospective” (paragraph 24), and that confining it to individuals and Hindu undivided families “especially works against the contention of the amendment being clarificatory” (paragraph 20); the petitioners, owners who wanted it applied to earlier agreements, lost. In ACIT v. Lakkanna Durgappa (ITA 2858-2859, 3032 and 3125/Bang/2025, 11 May 2026) the Bangalore Tribunal held that gains under a 2012 agreement “must be taxed in the year of transfer (AY 2013-14 here) and cannot be shifted to AY 2020-21 merely because the completion certificate was received in that year” (paragraph 26). The same Tribunal in Smt. Narayan Vedavathi v. DCIT (ITA 2084/Bang/2025 and batch, 27 August 2026), relying on Pankaj Kumar, held that the amendment “would not apply to the transactions effected prior to 01/04/2018” (paragraph 38).

The Revenue’s authority is Kanak Bhanj Deo. The Cuttack Tribunal (ITA 21/CTK/2024, 10 July 2024) taxed a 2012 agreement in assessment year 2017-18, when the owner received her flats, she having declared no gain in the agreement year; the Orissa High Court dismissed her appeal at admission on 29 August 2024 (ITA 26 of 2024, paragraph 5), and special leave was refused without reasons on 18 July 2025. Lakkanna Durgappa, although the Revenue had placed both orders before it, declined to follow them because “The decision of the Hon’ble jurisdictional High Courts binds us” (paragraphs 30 and 31), and left the Revenue to reopen the agreement year if it could (paragraphs 27 and 28). Outside Karnataka the Revenue has a fair point, the only High Court order on these facts having gone its way, and it bites hardest on an owner who offered nothing in the agreement year and now says that year, perhaps time-barred, was the year of transfer. His answer is that a dismissal at admission that did not consider Pankaj Kumar, Kapadia or the section’s commencement, and a refusal of special leave without reasons, lay down no law.

Pankaj Kumar and Lakkanna Durgappa speak of agreements made after 1 April 2018, and Lakkanna also “on or after 01.04.2017”; neither date is in the section, which applies from assessment year 2018-19 (Sri Alagappa Muthiah (HUF) v. DCIT, ITAT Bangalore, 12 August 2024, paragraph 7) and so reaches a gain arising in 2017-18, arguably including one under an earlier agreement where possession passed only in that year. Self-applying it to an old agreement is risky: in Vasant Shivram Madhavi v. ITO (ITAT Pune, 22 April 2025) gains offered for 2019-20 under a development agreement of March 2015 were taxed in 2015-16 in a reassessment, the Commissioner (Appeals) agreed, and the Tribunal sent the matter back to him, the validity of the reassessment included.

Which certificate, and selling before it

In Ahmedabad completion is marked by the building use permission. Whether that is a “certificate of completion” here has not been decided for tax, though Ushaben Jayantilal Sodhan (paragraph 29) treated its date as completion for section 54F, on facts. Where one tower is certified first and the owner’s flats are in the second, he will say his own tower’s certificate counts; the Revenue may say the first part-certificate does, and will cite Kanak Bhanj Deo against indefinite postponement. Two Tribunal decisions held nothing chargeable on post-2017 agreements while no certificate had issued: Ramesh Babu Nimmatoori v. ACIT (ITAT Hyderabad, 14 August 2024, paragraph 41) and Goutam Ghosh v. PCIT (ITAT Kolkata, 16 October 2024, paragraphs 3.3 and 3.4).

No decision applying the proviso was traced. Where landowners join each buyer’s sale deed as confirming parties, as in DCIT v. Mukesh Jamnadas Shah (ITAT Ahmedabad, IT(SS)A 201 to 203/Ahd/2019, 27 March 2023, paragraph 6.1), a post-2017 specified agreement would be caught flat by flat, each sale taxed in its own year under the ordinary rules, including section 50C, with no section 49(7) cost.

Optional or mandatory

The text opens “Notwithstanding anything contained in sub-section (1)” and says the gain “shall be chargeable” in the certificate year. The Memorandum and the Circular call it a “benefit” and a “regime”, which is the owner’s argument for an election. The text points to a mandatory charge, under which neither the owner nor the Assessing Officer could choose the agreement year instead; the argument from “benefit” is weaker, but no decision traced has rejected it.

Can a society member’s agreement be a specified agreement?

Nothing decides whether a society member’s alternate accommodation agreement, or his consent to the society’s development agreement, is a specified agreement. The Department has, however, treated a society’s redevelopment agreement as one: in Nathani Parekh Constructions Pvt. Ltd. v. ITO (TDS) (ITA 4174 and 4171/Mum/2023, 11 July 2024) the Assessing Officer and the Commissioner (Appeals) applied section 194-IC to a developer’s payments under its 2017 agreement with a co-operative housing society on that footing (paragraphs 4 and 5), and the Tribunal decided the appeal without ruling on the point (paragraph 10).

The member’s argument starts from “a person owning land or building or both”: he owns his flat (Circular 9 of 1969 says members should be regarded as the legal owners), and a registered alternate accommodation or tripartite agreement by which he agrees to its redevelopment for a flat in the new building is an agreement “to allow another person to develop a real estate project on such … building … in consideration of a share”. Gaurang S. Desai (Gujarat High Court, 2008), where the Department had itself assessed plot-holder society members as transferors of the land, gives an Ahmedabad bungalow society member some help.

The Revenue’s argument is that the society, not the member, allows the developer to develop, the alternate accommodation agreement only allots a flat, and the section was framed for “the owner of land”, as the Memorandum puts it. The Kolkata Tribunal in ACIT v. Emami Realty Ltd. (ITA 1457/Kol/2024, 12 January 2026), a section 194-IC case on an unregistered cash sale of a real estate undertaking between two companies, upheld, finding no infirmity in it (paragraph 7.1), the Commissioner (Appeals)’ view that only registered agreements in which “the consideration is in the form of a share in the area of the real estate project” qualify, because “area sharing is a prerequisite”. On that test an unregistered agreement fails, and so does a cash exit. A society, firm or company is outside the section (Nalapad Properties v. DCIT, ITAT Bangalore, 16 August 2024, paragraph 7.1).

The full value of consideration on each theory

If there is a transfer, section 48 computes the gain from “the full value of the consideration received or accruing as a result of the transfer”. There are four candidates.

Actual consideration in kind (section 48). The exchange line takes the value of the new flat, plus any cash that is consideration; Dilip Ahuja said so in terms (paragraph 9). In CIT v. Gita Duggal (Delhi High Court, 2013; Part 3) the Assessing Officer added the developer’s construction cost to the cash an owner received; the High Court decided only the section 54 question that followed. The Bangalore Tribunal in Himmadihalli Bachanna Krishna Murthy v. ITO (ITA 479/Bang/2026, 30 June 2026, paragraph 9.10) rejected the developer’s construction cost as the measure and took the stamp duty value of the built-up area, by analogy with section 45(5A). No decision has valued a member’s new flat for this purpose.

Stamp duty value of the old flat (section 50C). Section 50C applies to “the transfer by an assessee of a capital asset, being land or building or both” for less than the value adopted “for the purpose of payment of stamp duty in respect of such transfer”. For a Mumbai society member both conditions are in doubt: he may transfer a right under the society’s arrangement rather than land or building, and the alternate accommodation agreement is stamped on the new flat, not on the surrender of the old. A Gujarat apartment owner, who holds his flat with an undivided share in the land, transfers land and building on the exchange view, and the Revenue will say that the registered alternate accommodation agreement is the instrument of that exchange; his answer is that its stamp duty value is of the flat he receives, not of the flat he gives up. In MIG Co-operative Housing Society Group II v. ITO (ITA 896 and 1099/Mum/2016, 17 February 2017, paragraph 5) the Tribunal held, at society level, that what was transferred was “development rights not land or building”; in Brij Mohan Mehra the reopening that applied section 50C to a member was quashed without reaching it. Where the section applies, its third proviso ignores a stamp duty value within 110 per cent of the consideration, and sub-section (2) allows a reference to the valuation officer.

Fair market value of what was given up (section 50D). Where the consideration “is not ascertainable or cannot be determined”, section 50D substitutes “the fair market value of the said asset on the date of transfer”, which is the old flat. Section 50D values what the member gave and section 45(5A) what he got; for a 1970s walk-up the difference is large.

Stamp duty value of the new flat on completion (section 45(5A)). Only where the section applies, and then mandatorily, increased by consideration received in cash and, from assessment year 2024-25, by cheque, draft or any other mode. Whether hardship compensation, corpus or rent swells that value is taken up in Part 2; the Mumbai Tribunal in Nathani Parekh Constructions (paragraph 10) held, for section 194-IC, that alternate accommodation charges and hardship compensation are not consideration paid “as part of a share in the land or building or both”.

The cost of the new flat on each theory

Four rules compete.

Section 45(5A) cases: section 49(7). Section 49(7) makes the cost of the owner’s share, unless it is the asset referred to in the proviso, “the amount which is deemed as full value of consideration in that sub-section”: the stamp duty value as increased by any cash or other consideration (worked example 3). The 2025 Act counterpart is serial 20 of the Table in section 73(1), but it refers only to a share “under section 67(14)”. An owner whose certificate issued before 1 April 2026 and who sells a flat after that date meets the same gap as the section 49(4) cost discussed under extra area, and needs section 536(2)(b) or a purposive reading to keep the section 49(7) cost; no decision or Board statement on it was traced.

Continuation: the old cost carries over. If the new flat is the old flat in a new form, its cost is the old flat’s cost and improvements, plus the price of any area bought; Furia allowed indexation “in accordance with law” without computing it. The nearest statement is the Bench’s own “considered opinion”, given without argument and with counsel for the assessee agreeing, in Kushal K. Bangia v. ITO (ITA 2349/Mum/2011, 31 January 2012, paragraph 4; Part 2), that a capital receipt “ends up reducing the cost of acquisition of the asset, i.e. flat”, which assumes a pre-redevelopment cost. For an old flat acquired before 1 April 2001, section 55(2)(b)(i) allows the 1 April 2001 fair market value, capped for land or building at “the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001” (section 90(9)(a) and (10) of the 2025 Act). The proviso to section 48(ii), inserted by the Finance Act, 2023 from assessment year 2024-25, excludes from cost any interest claimed under section 24(b) or Chapter VI-A; section 72(3)(a) of the 2025 Act is to the same effect.

Exchange: the value given up. On exchange the member paid for the new flat with the old one, and the Mumbai Tribunal has costed it accordingly for tenants. In Sarjit Ghanshyam Desai v. ITO (ITA 1620/Mum/2026, 8 May 2026, paragraphs 4.10 and 4.11) the Assessing Officer took nil cost for a shop received for surrender of a tenancy; the Tribunal held that the premises cost the fair market value of the tenancy surrendered, or equivalently of the premises received, a cost the settlement in kind did not “evaporate” (Part 4 sets out the order). Murtuza Kothari v. ITO (ITA 4080/Mum/2025, 6 January 2026, paragraph 11) is to the same effect. Applied to an owner, the new flat costs its value at the exchange, reduced under section 54(1)(ii) by any exempt gain if it is transferred “within a period of three years of its purchase or construction”.

The Revenue’s nil-cost argument. From assessment year 2024-25, section 55(2)(a) gives a nil cost to “any other intangible asset” and “any other right” not acquired by purchase. If the member’s entitlement is a “right” distinct from the old flat, the Revenue will say its cost is nil. The member answers that it is his existing interest in the building in another form, within section 55(2)(b) as “any other capital asset”, and that “any other right” takes colour from the specific rights listed before it. The Revenue will reply that the list also includes tenancy rights and loom hours, and that “any other right” is residuary and was inserted to end the no-cost cases (Part 4). Neither side has been tested; a member who argues he received a mere “right” to a future flat walks towards it.

The holding period of the new flat

The statute. Section 2(42A) makes an asset short-term if held “for not more than twenty-four months immediately preceding the date of its transfer”, 24 months for land or building since assessment year 2018-19. Explanation 1(i)(b) adds the previous owner’s period where the asset came by one of the modes in section 49(1), among them partition of a Hindu undivided family, gift, will, succession or inheritance, transfer to a trust, conversion into family property under section 64(2) and the listed section 47 transfers. Nothing in section 2(42A), section 49(1) or section 2(101) of the 2025 Act carries the old flat’s period to a flat received in redevelopment, and section 536 of the 2025 Act has no holding-period clause.

The member’s case. Furia held that the alternate accommodation agreement “cannot be regarded as the starting point for computing the period of holding” (paragraph 10), and Urmila Jagdish Mehta that instalments for extra area did not “postpone the date of acquisition” (paragraph 16). The Bombay High Court in PCIT v. Vembu Vaidyanathan (Income Tax Appeal 1459 of 2016, 22 January 2019; special leave petition dismissed on 19 July 2019) held, of a builder allotment, that “the date of allotment would be the date on which the purchaser of a residential unit can be stated to have acquired the property” (paragraph 5), drawing on CBDT Circulars 471 and 672, which treat allotment by the Delhi Development Authority and “co-operative societies and other institutions” as construction for sections 54 and 54F. Vembu was not a redevelopment case, and the sentence Furia quotes from it at paragraph 14 (“the allottee gets title to the property on the issue of allotment letter”) is the High Court’s account of Circular 471, not its own holding. The Surat Tribunal in Jagdishkumar Chhotubhai Gandhi v. ITO (International Taxation) (ITA 245/SRT/2024, 29 September 2026, paragraphs 18 and 19) counted from a builder’s allotment of 2011 for a flat conveyed in 2016 and sold ten days later, and in Ashutosh Gurunath Haldipur v. ITO (ITA 5134/Mum/2014, 8 November 2016, paragraph 8), on a developer’s flat in a society redevelopment, the Tribunal, the assessee being absent, indexed “based on the actual payments made and date of payment”.

The Revenue’s case. The Departmental Representative in Bhupendra Chhaganlal Patel v. ITO (ITA 6516/Mum/2018, 9 December 2019, paragraph 11) argued that “the long term capital gain arose to the assessee when the old flat was handed over for demolition in consideration of the new flat. Thus, the assessee had already availed benefit of holding the old flat for more than 36 months and now what is sold is a new flat”; the Tribunal remanded “to find out if there was any transfer of old flat in favour of the developer” (paragraph 12). Sarjit Desai, a tenant case, looked to “the period of holding of the Permanent Alternate Accommodation” (paragraph 4.13). And the Bombay High Court in Rasiklal M. Parikh v. ACIT (Income Tax Appeal 314 of 2013, 10 March 2017; special leave petition dismissed on 20 November 2024) held at paragraph 34 that a developer’s allotment letter under the Maharashtra Ownership Flats Act “does not confer title until the agreement for sale … is registered”, and that Circular 672 did not help an allottee from a developer rather than a society. It is the Revenue’s best High Court text against allotment-date reasoning, though a section 54F case decided before Vembu.

Where it stands. On the decided cases a member’s new flat is held at least from the development agreement or allotment; none holds that the period runs only from possession, or that it runs from the original purchase. Count from the development agreement and treat the purchase date as an argument. ITO v. Naresh Chellaram Gidwani (8 January 2014), on a redevelopment flat, should not be cited for continuity: it decided only the previous owner’s indexation under Manjula Shah.

The 2024 regime and why “acquired before 23 July 2024” turns on continuation

The Finance (No. 2) Act, 2024 confined indexation (the second proviso to section 48) to a transfer “which takes place before the 23rd day of July, 2024”, and section 112(1)(a)(ii) taxes long-term gains of a resident individual or Hindu undivided family at 20 per cent before that date and 12.5 per cent on or after it. A new second proviso to section 112(1)(a) protects land or building “acquired before the 23rd day of July, 2024”: where tax under item (B), at 12.5 per cent, “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”.

It is a cap, not an election: the lower of 12.5 per cent without indexation and 20 per cent with it, for a resident individual or Hindu undivided family only; a non-resident, a company or firm and the society pay 12.5 per cent without indexation. Section 197(3) of the 2025 Act restates it as a formula: for land or building “which was acquired before the 23rd July, 2024”, the excess E = A - B is ignored, A being tax at 12.5 per cent under section 197(1)(b) and B tax at 20 per cent on the gain with indexed cost, which section 72(2) supplies “for the purposes of item B of the formula in section 197(3)” only. The 2026-27 index, 384, was notified under section 72(8)(a) by Notification 85/2026.

On the continuation view the new flat was acquired when the old flat was, or at the latest on the development agreement, so a member who bought in 2005 is protected whatever the date of his alternate accommodation agreement. On the exchange view it is acquired on that agreement or on possession, and if either falls after 23 July 2024 the comparison is lost, though he has owned a flat there for twenty years. Neither section 112 nor section 197(3) defines “acquired”. (The old flat’s gain on an exchange after 23 July 2024 keeps the comparison, the old flat having been acquired earlier.) The favourable view needs matching documents: a development agreement before 23 July 2024 fixing the entitlement, and an alternate accommodation agreement describing the new flat as a substitute.

Extra area: free, bought and section 56(2)(x)

The text

Section 56(2)(x)(b) taxes a person who receives immovable property “(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property”, or “(B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of” Rs 50,000 and ten per cent of the consideration. The first proviso allows the stamp duty value on the date of the agreement fixing the consideration; the second confines that to cases where the consideration “or a part thereof” was paid by account payee cheque, bank draft or electronic mode “on or before the date of agreement”; the third allows a reference to the valuation officer; and a fourth raises ten per cent to twenty per cent for property within the second proviso to section 43CA(1), discussed below. The 2025 Act counterpart is section 92(2)(m)(ii), with the exclusions in section 92(3) and the agreement-date and valuation rules in section 92(4); where the 1961 proviso says the agreement-date value “may be taken”, section 92(4)(a) says it “shall apply”.

Three lines of defence

The Mumbai Tribunal has rejected section 56(2)(x) additions on members’ new flats on three grounds, each with gaps: no order has valued the old flat against the new under the inadequate-consideration limb in clause (b)(B), where the Revenue’s case is strongest when a small old flat is exchanged for a much larger one; Dharmani decided the free area partly on the pre-2014 text of section 56(2)(vii); the no-receipt decisions, Snehalata Dhayagude and Manoj Chhadva, were tenant cases that defer the question to the year of possession rather than answer it; and Pitale gives no statutory analysis.

Exchange is not inadequate consideration. Pitale: the member “has got new flat as per the agreement entered with the developer for redevelopment of the society. Thus it is not a case of receipt of immovable property for inadequate consideration” (paragraph 4); the addition was Rs 19,74,660, the new flat’s stamp duty value less the old flat’s indexed cost. In Laxman Kanaiyalal Dharmani v. ITO (ITA 5675/Mum/2025, 2 December 2025), where Rs 89,08,300 was added on a 961 square foot flat received for 623, the Tribunal held at paragraph 7 that the 961 square feet were not received without consideration, “since the assessee has given up 623 sq.ft of his old flat as a consideration”. In Bharat Kishin Samtani v. ITO (ITA 6966/Mum/2025, 8 June 2026, paragraph 9) section 56(2)(x) “is not applicable” to 851.21 square feet received in exchange, 220.68 of them free. Amar Narendra Joshi v. ITO (ITA 5836/Mum/2025, 23 April 2026), a single-Member decision on an ex parte assessment, deleted the whole addition of Rs 41,38,500 on the same ground without separately testing the 140 square feet of bought area deducted in computing it.

No receipt until possession of a habitable flat. Snehalata Dhayagude: “One cannot ‘receive’ a flat that does not exist in a habitable state” (paragraph 9.3). Manoj Devshi Chhadva v. ITO (ITA 7534/Mum/2025, 16 July 2026, paragraph 10): “Mere execution or registration of a redevelopment agreement creates only a contractual right to obtain a flat in future”.

The specific head excludes the residuary head. Vasant Nagorao Barabde, paragraph 8.2, following CIT v. D.P. Sandu Bros. Chembur (P) Ltd. ((2005) 273 ITR 1, Supreme Court): where the receipt falls under capital gains, “applicability of Section 56 is ruled out”. Barabde was a tenant who conceded a taxable transfer; the ground is strongest on the exchange line and in tension with continuation, under which there is no capital gains transaction for the residuary head to yield to.

The Revenue’s theories, and where they stand

The whole flat at stamp duty value has been rejected in every decision traced. Stamp duty value less the old flat’s indexed cost was the Commissioner (Appeals)’ method in Dharmani, on the footing that “The Appellant has paid the consideration in kind i.e. the old flat”; the Tribunal deleted it partly by applying section 56(2)(vii) as it stood in the 2010 agreement year, which a Revenue appeal would attack because section 56(2)(x) charges the year of receipt. The member answers that the consideration is the old flat itself, not its cost.

Capital gains on the extra area alone. In Ranjana Hemant Pendharkar an Additional Commissioner (Appeals) at Udaipur directed capital gains on the Rs 82,00,000 received plus “proportionate value of 56% additional carpet area”, allowing the old flat’s cost and section 54. The Tribunal held the Rs 82 lakh a capital receipt (paragraphs 11 and 12) and set aside the extra-area direction as an enhancement made without notice under section 251(2), sending back for decision afresh, after hearing the member, “whether the additional carpet area received by the assessee is in exchange of existing flat” (paragraphs 13 and 14). The issue is pending. The older answers are Harisarvottam Lambus (extra area is “part of total consideration”, sheltered by section 54) and Kushal Bangia (an addition for 173 square feet deleted by the Commissioner (Appeals) and not pursued).

Purchased area

Bought area is treated differently. Bharat Samtani treated the 544.19 square feet bought as outside the exchange, found the assessee eligible for the first and second provisos on a part payment by cheque on 4 February 2016, and remanded only to verify that payment and whether the price matched the ready reckoner rate (paragraph 9). Seema Hasmukh Shah (Part 4) applied the first proviso to a tenant’s bought area on thin reasoning, and ITO v. Paresh Mulayamchand Panday (ITA 7802/Mum/2025, 20 May 2026) upheld deletion of Rs 1,33,50,000 added without showing which property the value related to or making a reference to the valuation officer (paragraphs 30 and 31).

Whether an allotment letter or memorandum is an “agreement fixing the amount of consideration” divides Mumbai Benches. Vinit Ramnath Parkar v. ITO (ITA 9032/Mum/2025, 25 May 2026, paragraph 6) held that an allotment letter “cannot take place of ‘agreement for sale’, which is both registered and enforceable”; Shashi Yogendra Raj Singhvi v. ITO (ITA 3022/Mum/2022, 21 March 2023, paragraph 6) took the allotment letter date where all terms were in it and about a quarter of the price had been paid.

Cost and holding period of extra area

If an amount was taxed under section 56(2)(x), section 49(4) makes it the cost on a later sale. Its 2025 Act counterpart, serial 17 of the Table in section 73(1), refers only to section 92(2)(m), so area taxed under the 1961 clause and sold after 1 April 2026 needs section 536(2)(b) or a purposive reading to keep the step-up.

On holding period, Furia (paragraph 15) held the purchased and gifted areas one asset with the rest; Urmila Jagdish Mehta held that instalments for extra area did not postpone acquisition. The Revenue’s argument, put by the Departmental Representative in Urmila Jagdish Mehta (paragraph 10), is that the last instalment “clearly establishes that the acquisition of rights in respect of the additional constructed area was completed only on” its date.

Two limits on the member’s arguments

Continuation protects only rights the member had. In June Alice Fernandes v. ITO (IT) (ITA 4071/Mum/2026, 31 August 2026) a non-resident’s 1988 booking with the original builder did not give her the agreement-date value under the first proviso to section 56(2)(vii)(b) on her 2016 purchase in the redeveloped building: the old agreement was for a different flat at a different price, no payment was linked to the price fixed with the new developer, and “No earlier agreement fixing the consideration for that transfer” was produced (paragraphs 6.6 to 6.9). A member who says his new flat replaces something should be able to prove what.

The developer’s side of a concessional sale of extra area is section 43CA: the area is its stock, and a stamp duty value that does “not exceed one hundred and ten per cent of the consideration” is ignored (first proviso), 120 per cent for a first allotment of a residential unit of up to Rs 2 crore between 12 November 2020 and 30 June 2021 (second proviso); above that, the value is deemed its consideration. The member’s tolerance under section 56(2)(x)(b)(B) comes to the same ten per cent band for any purchase above Rs 5 lakh. Both use the same stamp duty value on the same date, so a developer reassessed under section 43CA supplies the material for a section 56(2)(x) notice to the member; the agreement-date proviso, with part payment by cheque on or before the agreement, should be secured for both at once. The developer’s position is in the developer series, Part 1 and on the section 43CA page.

When the member gets something different: two flats for one, a shop for a flat, another wing, or a share of revenue

Two old flats for one new. Combining two flats into one transfers two houses on the exchange view, and section 54 does not require one old asset for one new: in Sanjeev Behl v. ITO (ITA 5345/Mum/2024, 30 April 2025) a non-resident sold two flats on one day and bought one, and the Tribunal, following an earlier order of the same Tribunal, allowed section 54 on both gains although the Commissioner (Appeals) had refused it because two houses were sold (paragraphs 19 to 22). Each old flat keeps its own cost and holding period.

One old flat for two new. The commoner case is a large old flat exchanged for two smaller ones, or a flat and a shop. On the exchange view section 54 requires “one residential house in India”, subject to the once-in-a-lifetime option for two houses where the gain does not exceed Rs 2 crore (Part 3). On the continuation view the old cost must be split, by area or stamp duty value at receipt, consistently.

A shop for a flat, or a flat for a shop. Continuation is weakest here, because the member ends with a different kind of asset. On the exchange view a flat given for a shop is a house transferred, but section 54 needs a new house and section 54F an old asset that is not one, so neither applies unless he buys a house elsewhere in time; a shop owner who takes a flat can claim section 54F. Vipul Bhagwandas Rajput v. ITO (ITA 2514/Mum/2026, 9 July 2026) shows the exposure: a tenant who received a commercial unit in a redeveloped Mumbai building under a permanent alternate accommodation agreement registered at nil consideration on 5 December 2018 (he said he had held it since 2007) and sold it on 17 December 2018 was assessed under section 56(2)(x) on its stamp duty value of Rs 1,06,83,100 and again on the whole price of Rs 1,06,00,000 at nil cost; the Commissioner (Appeals) deleted the second addition, recast the first as long-term gains on relinquishment of the tenancy and refused section 54F because the new property was commercial. The Tribunal quashed the reopening on procedure without reaching the merits.

A flat in another wing or a later phase. Furia’s substitution “from the old structure to the newly constructed premises” assumes the new premises stand where the old did. Another wing of the same layout keeps most of that argument, the member’s interest in the land being unchanged; a later phase on a different plot, or another of the developer’s buildings, has a much weaker one, and the Revenue will say a different asset was acquired, with a fresh holding period and the 23 July 2024 date. A delayed phase also brings in the section 54 construction window (Part 3) and, under section 45(5A), a certificate “for the whole or part of the project” that may not cover the member’s phase.

A share of sale proceeds. In a revenue-sharing deal the owner, or the society for its members, takes a percentage of what the developer realises on the free-sale flats. That consideration is money, so section 45(5A) does not apply (Emami Realty, approving the Commissioner (Appeals)’ statement that “area sharing is a prerequisite”), and on that view neither does section 194-IC. The year is unsettled: the transfer happens on the ordinary rules, but the amount is unknown until the flats sell, and whether the expected share accrues in the transfer year or each payment is taxed as fixed has not been decided at member level. On holding period, ITO v. G. Vijayasimha Reddy (ITA 374 and 375/Hyd/2023, 2 December 2024) held long-term a landowner’s gains from 2.40 per cent of sale revenue under a 2012 agreement for land held since 2006, rejecting the Revenue’s argument that the asset was acquired when flats were demarcated, though largely for consistency with a co-owner’s accepted assessment; an earlier order of 5 January 2024 was recalled and should not be cited.

A share of TDR. Some agreements give members transferable development rights, or pay them for the TDR the developer loads. In Harisarvottam N.R. Lambus the member received Rs 13,50,000 “for transfer of his TDR entitlement”; in Kishor Jamnadas Morzaria (Part 2) Rs 4,59,506 paid for the developer’s use of additional FSI and TDR was treated as hardship compensation, without discussion of the point. TDR certificates are a right, not land or building, so on the reasoning in State Bank of India Staff Vaibhav CHS (Part 4), a society-level decision on development rights, section 50C should not apply to their sale; the contrary line is in Part 3. From assessment year 2024-25 the Revenue will say their cost is nil as “any other right” under section 55(2)(a); the earlier no-cost line (Part 4) was applied at society level, never to a member’s own TDR. A member paid for agreeing that TDR may be loaded has Morzaria on his side unless the agreement prices the TDR as a separate sale; the Revenue will say such a payment is the price of a right in the land, taxable as capital gains at that nil cost.

Joint holders, co-heirs and Hindu undivided families at the transfer stage

Co-owners. Each co-owner is assessed on his share: Bharat Samtani’s addition was confined to his 15 per cent, and in Upinder Kaur Khalsa Rao, where the flat had been inherited with two sisters, the Commissioner (Appeals) taxed only a one-third share of the hardship compensation (the Tribunal then deleted even that as a capital receipt). Who the co-owners are is a question of title, not of a register (Vadagur Narayanappa Premachandra v. ACIT, ITAT Bangalore, 20 January 2025, paragraph 13, a joint development case on land). Each co-owner’s dates, cost and residence are separate; a non-resident has no indexation comparison after 23 July 2024.

Heirs and the society nominee. On a member’s death the heirs own in their shares, whoever the society has recorded. Where the Dispute Resolution Panel taxed the whole transit rent in a nominee’s hands though ten heirs were said to have shared it, the Tribunal held the rent a capital receipt and left the nominee point undecided (Narayan Devarajan Iyengar v. ITO, 10 May 2023, paragraphs 10 and 11; Part 4). An heir’s cost and holding include the deceased’s under section 49(1) and Explanation 1(i)(b) to section 2(42A), with indexation from the year the previous owner first held the asset (CIT v. Manjula J. Shah, Bombay High Court, 11 October 2011, paragraph 24). Whether the heir’s flat is “acquired before 23 July 2024” by the deceased’s acquisition is undecided, though Manjula Shah points that way.

Hindu undivided families. A family’s flat is the family’s asset, and section 45(5A) and the 2024 comparison both extend to it. Where a partition is pending, the transferor is whoever held title at the agreement: a member allotted the flat on partition before then takes the family’s cost and holding under section 49(1)(i); otherwise the family transfers.

Landowners’ heirs in old buildings. Where the original builder never conveyed the land, his heirs may have to join the agreement, and are taxed on what they receive as capital gains on their rights in the land (Pramod J. Jayakar v. ACIT, ITA 2770/Mum/2014, 28 July 2017, paragraph 6; Part 4).

Worked example 1: resale of the new flat on the continuation and exchange views

The facts are illustrative. Mr A, a resident individual, bought a 60 square metre Ahmedabad flat on 15 June 2005 for Rs 12,00,000. The society’s development agreement under section 41A was registered on 20 August 2020 and his alternate accommodation agreement for a 78 square metre flat, at no cost, on 15 September 2020, when its stamp duty value was Rs 54,00,000. He vacated on 1 December 2020; the building use permission issued on 30 April 2023 and he took possession on 15 May 2023, at a stamp duty value of Rs 70,00,000. Section 45(5A) does not apply. Three views are tested: continuation (Furia), exchange on the alternate accommodation agreement (Dilip Ahuja, Pitale), and exchange on possession (the Revenue in Bhupendra Patel), with section 54 claimed on both exchange views. Short-term gains are taxed at an assumed 30 per cent; surcharge and cess are ignored. The Cost Inflation Index values are 117 (2005-06), 301 (2020-21), 348 (2023-24), 376 (2025-26) and 384 (2026-27).

Step 1: the old flat on the exchange views.

	Exchange on 15 September 2020	Exchange on 15 May 2023
Full value of consideration (value of new flat)	Rs 54,00,000	Rs 70,00,000
Indexed cost of old flat	Rs 30,87,179	Rs 35,69,231
Long-term gain	Rs 23,12,821	Rs 34,30,769
Section 54 (cost of new flat exceeds the gain)	exempt	exempt
Tax at 20 per cent if section 54 is lost	Rs 4,62,564	Rs 6,86,154

Step 2: sale on 10 March 2024 for Rs 72,00,000 (before 23 July 2024).

	Continuation	Exchange on agreement	Exchange on possession
Holding	from 15 June 2005: long-term	from 15 September 2020: long-term	from 15 May 2023: short-term
Cost	Rs 12,00,000	Rs 54,00,000	Rs 70,00,000 less Rs 34,30,769 = Rs 35,69,231
Indexed cost	Rs 35,69,231	Rs 62,43,189	not available
Gain	Rs 36,30,769	Rs 9,56,811	Rs 36,30,769
Tax	Rs 7,26,154	Rs 1,91,362	Rs 10,89,231

On the possession view the sale is within three years of construction, so section 54(1)(ii) reduces the cost by the exempt gain; if the agreement view’s three years also run from completion, the same applies there (cost Rs 30,87,179, indexed cost Rs 35,69,230, gain Rs 36,30,770, tax Rs 7,26,154). Without a section 54 claim, the possession view would cost Rs 6,86,154 on the old flat and Rs 60,000 on a short-term gain of Rs 2,00,000, Rs 7,46,154 in all, less than the Rs 10,89,231 with the claim, because the clawback turns a gain taxed at 20 per cent into one taxed at the slab rate. On that view section 54 is itself exposed: if the new flat counts as constructed, it was complete on 30 April 2023, before the 15 May 2023 transfer, which Shantaben P. Gandhi (Gujarat High Court) and Farida A. Dungerpurwala (ITA 5169/Mum/2010) held fatal (Part 3); the member’s reply is that it was purchased within the window.

Step 3: sale for Rs 80,00,000 after 23 July 2024. On every view the flat was acquired before 23 July 2024, so the comparison applies, under the second proviso to section 112(1)(a) for a sale on 20 January 2026 and section 197(3) of the 2025 Act for one on 15 August 2026. A is tax at 12.5 per cent without indexation, B at 20 per cent with it; the lower is payable. On the possession view only the January 2026 sale is within three years of construction and uses the reduced cost. If the agreement view’s three years run from completion, as in Step 2, that sale is caught too: cost Rs 30,87,179, gain without indexation Rs 49,12,821 (A Rs 6,14,103), gain with indexation Rs 41,43,590 (B Rs 8,28,718), tax payable Rs 6,14,103 instead of Rs 2,50,897.

	Continuation	Exchange on agreement	Exchange on possession
20 January 2026: gain without indexation	Rs 68,00,000	Rs 26,00,000	Rs 44,30,769
A at 12.5 per cent	Rs 8,50,000	Rs 3,25,000	Rs 5,53,846
Gain with indexation (CII 376)	Rs 41,43,590	Rs 12,54,485	Rs 41,43,589
B at 20 per cent	Rs 8,28,718	Rs 2,50,897	Rs 8,28,718
Tax payable	Rs 8,28,718	Rs 2,50,897	Rs 5,53,846
15 August 2026: gain without indexation	Rs 68,00,000	Rs 26,00,000	Rs 10,00,000
A at 12.5 per cent	Rs 8,50,000	Rs 3,25,000	Rs 1,25,000
Gain with indexation (CII 384)	Rs 40,61,538	Rs 11,10,963	Rs 2,75,862
B at 20 per cent	Rs 8,12,308	Rs 2,22,193	Rs 55,172
Tax payable	Rs 8,12,308	Rs 2,22,193	Rs 55,172

What the example shows. With section 54 absorbing the old flat’s gain, the new flat starts at its higher value, but an early sale undoes much of that advantage. Before 23 July 2024 the clawback brings the agreement-view result back to the continuation result but for a rupee of rounding. After that date it does so only for the indexed computation: the twelve and a half per cent computation still runs on the reduced cost of Rs 30,87,179 rather than Rs 12,00,000, so a January 2026 sale on that reading pays Rs 6,14,103 against Rs 8,28,718 on continuation. The possession view is costly for a quick sale, because it makes the gain short-term.

Worked example 2: free and purchased extra area

The facts are illustrative. Mrs B bought a 50 square metre flat on 10 November 1998 for Rs 4,00,000; its 1 April 2001 fair market value was Rs 7,00,000 and stamp duty value Rs 6,50,000, so her cost under section 55(2)(b) is Rs 6,50,000. The development and alternate accommodation agreements of 1 February 2021 gave her 65 square metres free (15 of them extra). A supplementary agreement of the same date priced 10 more square metres at Rs 60,000 a square metre, Rs 6,00,000, of which she paid Rs 1,00,000 by account payee cheque that day and Rs 5,00,000 on 1 March 2023. The stamp duty rate was Rs 65,000 a square metre on 1 February 2021 and Rs 85,000 on 20 June 2023, when the final agreement was registered and she took possession of 75 square metres. She sold on 10 March 2025 for Rs 75,00,000, apportioned at Rs 1,00,000 a square metre. The Cost Inflation Index values used are 100 (2001-02), 301 (2020-21), 331 (2022-23), 348 (2023-24) and 363 (2024-25).

Step 1: section 56(2)(x) in the year of possession (2023-24).

Item	Computation	Amount taxable
Purchased 10 square metres, value at registration	Rs 8,50,000 less Rs 6,00,000 = Rs 2,50,000; exceeds the higher of Rs 50,000 and Rs 60,000	Rs 2,50,000
Purchased 10 square metres, first proviso (agreement date, part paid by cheque)	Rs 6,50,000 less Rs 6,00,000 = Rs 50,000; does not exceed Rs 60,000	nil
Free 15 square metres, member’s view (Pitale, Dharmani, Bharat Samtani)	received for the old flat	nil
Free 15 square metres, Revenue’s view (without consideration)	15 square metres at Rs 85,000	Rs 12,75,000
Whole 65 square metres, method of the Commissioner (Appeals) in Dharmani	Rs 55,25,000 less indexed cost Rs 22,62,000 = Rs 32,63,000; threshold Rs 2,26,200	Rs 32,63,000

Step 2: sale on 10 March 2025 (after 23 July 2024). On the member’s view the flat is one asset held since 1998, or at least since 2021, costing Rs 6,50,000 plus Rs 6,00,000 for extra area indexed by year of payment, as Haldipur allowed. On the Revenue’s split view the 50 square metres replacing the old flat continue from 1998, but the free 15 and bought 10 square metres were acquired on 20 June 2023 and are short-term.

	Member’s view	Revenue’s split view
50 square metres (old area)		long-term: A Rs 5,43,750, B Rs 5,28,100; tax Rs 5,28,100
15 square metres free		short-term gain Rs 15,00,000 (cost nil); tax Rs 4,50,000
10 square metres bought		short-term gain Rs 4,00,000; tax Rs 1,20,000
Whole flat	long-term; cost Rs 12,50,000; indexed cost Rs 30,28,436
A at 12.5 per cent	Rs 7,81,250 (gain Rs 62,50,000)
B at 20 per cent with indexation	Rs 8,94,313 (gain Rs 44,71,564)
Total tax on the sale	Rs 7,81,250	Rs 10,98,100

The indexed costs on the member’s view are Rs 23,59,500 for the 2001 value, Rs 1,20,598 for the 2020-21 payment and Rs 5,48,338 for the 2022-23 payment.

Suppose the Revenue also succeeded under section 56(2)(x) in 2023-24 on the free and purchased area without the first proviso: Rs 15,25,000 (Rs 12,75,000 plus Rs 2,50,000), taxed at Rs 4,57,500. Section 49(4) would then give those areas costs of Rs 12,75,000 and Rs 8,50,000, the short-term gains on sale would fall to Rs 2,25,000 and Rs 1,50,000 (tax Rs 67,500 and Rs 45,000), and the two-year total is again Rs 10,98,100. At a constant slab rate the addition only brings tax forward; the real cost of the Revenue’s view is the split into short-term areas, Rs 3,16,850 more than the member’s view here, plus interest and penalty exposure.

Worked example 3: a bungalow owner under section 45(5A)

The facts are illustrative. Mrs C, a resident individual, bought an Ahmedabad bungalow plot in 1995 for Rs 8,00,000; its 1 April 2001 fair market value was Rs 40,00,000 and stamp duty value Rs 35,00,000, so her cost is Rs 35,00,000. On 10 November 2022 she registered a joint development agreement for two flats and Rs 20,00,000 by cheque on signing, from which the developer deducted Rs 2,00,000 under section 194-IC, and on 1 December 2022 she handed over the plot. The building use permission for the whole project issued on 25 June 2025, when the two flats’ stamp duty value was Rs 1,60,00,000, Rs 80,00,000 each. The full value of consideration under section 45(5A) is Rs 1,80,00,000, charged in 2025-26.

	Transfer treated as at the certificate (2025-26)	Transfer treated as in 2022-23
Rate rule	12.5 per cent, with the 20 per cent comparison	20 per cent with indexation
Gain without indexation	Rs 1,45,00,000 (A: Rs 18,12,500)
Indexed cost	Rs 1,31,60,000 (CII 376)	Rs 1,15,85,000 (CII 331)
Gain with indexation	Rs 48,40,000 (B: Rs 9,68,000)	Rs 64,15,000
Tax payable	Rs 9,68,000	Rs 12,83,000

Section 45(5A) moves the year of charge but does not say when the transfer “takes place” for the 23 July 2024 rate rules. The Department’s taxpayer explainer on joint development agreements, which is not a circular, runs the holding period to the date before the certificate, pointing to the first column; an owner preferring the second would say the registered agreement and possession transferred the plot in 2022. Neither reading has been tested. Here the certificate-date reading is cheaper, because the later index is higher.

Under section 49(7) the two flats take as cost “the amount which is deemed as full value of consideration”, on the words Rs 1,80,00,000 (the stamp duty value increased by the Rs 20,00,000 cheque), or Rs 90,00,000 a flat apportioned by stamp duty value. The cost thus includes cash already received and taxed; the Explanatory Memorandum to the Finance Bill, 2017 and the Department’s explainer use the same words. The Revenue may say the cash bought nothing in the flats and confine their cost to their stamp duty value, Rs 80,00,000 a flat; the text supports the owner, though the point is untested. Under rule 37BA(3)(i) the credit for the Rs 2,00,000 deducted in 2022-23 belongs to the assessment year in which the income is assessable, 2026-27.

Gujarat: what the record shows

No decision of the Ahmedabad, Surat or Rajkot Bench of the Tribunal, or of the Gujarat High Court, on the taxation of a housing society member in a redevelopment was traced; orders reported only in subscription services may exist. Mumbai orders are coordinate Bench decisions; the Ahmedabad Bench should follow them on like facts or refer a disagreement to a Special Bench. On transfer itself, though, they conflict: Furia takes the continuation view, while Dilip Ahuja, Harisarvottam Lambus and Pitale take the exchange view, so neither the member nor the Revenue can say that Mumbai settles the point. Gujarat’s authority concerns landowners and plot-holders.

Year of transfer under development agreements. The High Court applied the agreement year where possession and every right of development passed (Jayantilal C. Desai, 2011; Swastik Engg., 2014), but in Chhaganlal Mulji Dholu (2022) quashed a reopening premised on transfer in the agreement year, accepting that the transfer took place only when all obligations under the development agreement were fulfilled (paragraph 5.2), on the sale deed of the following year (paragraphs 6 and 6.1). The Ahmedabad Tribunal held in Ashwin M. Patel, HUF v. ITO (ITA 1876/Ahd/2013, 19 February 2015, paragraph 18) that an agreement fixing no consideration is not a section 53A contract, so handing over possession under it was not a transfer (the Revenue appealed; the High Court condoned a five-day delay on 14 September 2015, and no order on the merits was traced), and in ITO v. Nasrin Mohamadfarooq Memon (ITA 813/Ahd/2026, 21 July 2026, paragraph 8.1) that an agreement which “merely permitted the developer to enter the land for the purpose of development and construction” effected no transfer; its remark on the completion certificate year (paragraph 8.2) is obiter for a pre-2017 agreement.

Plot-holders and completion. CIT v. Gaurang S. Desai (Tax Appeal 1174 of 2007, 14 July 2008) is the only High Court decision on society members giving their land to a developer for flats. The Court declined to interfere where the Revenue had itself reassessed the members as transferors and the appellate authorities had allowed section 54F on the one flat each received, treating the flats as purchased within two years; it gave no reasons on the Revenue’s argument that the exemption could not be claimed in a return filed after a reassessment notice (paragraph 7), and held only that no condition of section 54F was shown to have been violated (paragraph 9). In Ushaben Jayantilal Sodhan (2018), where an owner demolished her bungalow and built eight flats, the Court held that an agreement to sell does not itself transfer the property (paragraph 18), and allowed section 54F only for the one flat whose sale deed preceded completion, denying it for the three sold after the building use permission (paragraph 29).

Tax deducted. In Hiteshkumar Mohanlal Desai v. Assessment Unit (ITAT Surat, ITA 962/SRT/2025, 29 September 2026), an owner from Daman, an addition of Rs 2,45,32,692 was deleted where the developer had reported tax deducted on far more than it paid and the owner had offered gains as received, claiming only the matching credit (paragraphs 8 to 11; Part 2).

Open questions in Part 1, argued both ways

1. Continuation or exchange? For the member: Furia and Urmila Jagdish Mehta; Balbir Singh Maini; and, indirectly, Vaswani Projects. For the Revenue: Grace Collis and Kartikeya Sarabhai; Dilip Ahuja, Harisarvottam Lambus and Pitale; the Commissioner (Appeals)’ reasoning in Upinder Kaur Khalsa Rao, which the Tribunal did not answer; the tenant decisions (Sarjit Desai, Murtuza Kothari), which treat the new premises as acquired in exchange; and, by analogy, Aparna Sandeep Kulkarni. Furia did not analyse clauses (v) or (vi). The Mumbai Tribunal is divided; no High Court has decided it for a society member.

2. In which year does a member transfer? For the member: on delivery of the new flat, or never (Jigar Sevantilal Shah, Snehalata Dhayagude, Brij Mohan Mehra). For the Revenue: on the development agreement or on vacating (Kapadia; the alternative finding in Poojari, on acceptance of an offer and vacating). Open, and decided case by case on the documents.

3. Can a member’s alternate accommodation agreement be a specified agreement under section 45(5A)? For the member: he owns a building and agrees under a registered document to its redevelopment for a share in the new one, and the Department itself treated a society’s agreement as specified in Nathani Parekh Constructions. For the Revenue: the society, not the member, allows the developer to develop, and the section was framed for owners of land (Emami Realty). Undecided.

4. When does the new flat’s holding period start? For the member: the original purchase, or at least the development agreement or allotment (Furia, Urmila Jagdish Mehta, Vembu, Jagdishkumar Gandhi). For the Revenue: possession or registration (the Departmental Representative in Bhupendra Patel; Sarjit Desai for tenants; Rasiklal Parikh). Furia left the purchase date open; no decision makes possession the start for an owner.

5. Is the new flat “acquired before 23 July 2024”? For the member: on continuation it was acquired with the old flat. For the Revenue: on exchange it was acquired on the agreement or possession, and neither section 112 nor section 197(3) carries an earlier date forward. Undecided.

6. Does section 56(2)(x) reach free extra area? For the member: Pitale, Dharmani and Bharat Samtani hold the free entitlement received in exchange outside it. For the Revenue: the extra area is a receipt beyond what was given up, valued at stamp duty value or at that value less the old flat’s indexed cost (Dharmani, Commissioner (Appeals)). Consistently decided for the member in the Mumbai Tribunal for free area within the entitlement, but untested under the inadequate-consideration limb, reasoned partly on the pre-2014 text in Dharmani, open for capital gains on extra area while the Pendharkar remand is pending, and never considered by a High Court.

7. What is the cost of the new flat? For the member, on continuation: the old cost carried over; on exchange: the value given up (Sarjit Desai, Murtuza Kothari, for tenants). For the Revenue: nil under section 55(2)(a) as “any other right” from assessment year 2024-25, or the old cost reduced by any exempt gain. Untested for an owner member.

8. Is section 45(5A) mandatory, which certificate triggers it, and when does the transfer “take place” for the 2024 rates? For the owner: the Memorandum calls it a benefit, the certificate is the one covering his share, and the transfer date is whichever the documents support. For the Revenue: “shall be chargeable” is mandatory, the first part-certificate triggers it, and the transfer is at the certificate. None of the three has been decided.

A member’s checklist

1. Read the alternate accommodation agreement for three clauses: substitution or exchange; when rights in the old flat cease; how and when extra area is priced.
2. Decide the model before filing the return for the agreement year, and file consistently with it. If the exchange model is chosen, compute the gain, claim section 54 in that return, and record the new flat’s cost. Each carries a risk. The exchange model concedes a transfer and fixes its year; if the Assessing Officer picks another year, the section 54 claim may sit in the wrong return, and a sale within three years of the new flat’s purchase or construction claws the exemption back. The continuation model claims nothing; if it fails for an open year, the exchange gain is taxed with no section 54 claim on record, which must then be made in the reassessment (Part 3, worked example 1).
3. Keep the old flat’s cost papers, with a 1 April 2001 valuation and stamp duty value for older flats; exclude interest claimed under section 24(b).
4. Record every date: purchase, development agreement, member’s agreement, vacating, building use permission, possession.
5. For bought area, fix the price in signed writing and pay part by account payee cheque or electronic transfer on or before that date, so that the first proviso to section 56(2)(x) is available.
6. Do not sell within 24 months of possession without advice, and within three years if section 54 was claimed on the exchange.
7. Check the 23 July 2024 date for every holder separately, and residence status for each co-owner.
8. Settle title before signing: heirs, partition, nominee, joint names.
9. For a bungalow or plot owner, confirm whether the agreement is a registered area-sharing agreement within section 45(5A), which certificate will mark completion, and what happens if any flat is sold before it.
10. Answer a section 56(2)(x) notice on all three grounds, in the alternative: exchange, no receipt before possession, and the specific head. Say that they are alternatives. The exchange and specific-head grounds concede a transfer and invite a capital gains computation in a year the Assessing Officer chooses, and they sit uneasily with a continuation position on holding period; the no-receipt ground moves the question to the year of possession rather than answering it. Ask for a reference to the valuation officer where the stamp duty value is disputed.

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

Subject	Income-tax Act, 1961	Income-tax Act, 2025
Definition of transfer	section 2(47) (part performance (v); membership and enjoyment (vi))	section 2(109) (part performance (g); membership and enjoyment (f); former Explanation 2 (h); immovable property defined after (h))
Short-term capital asset and holding period	section 2(42A)	section 2(101)
Capital asset	section 2(14)	section 2(22)
Charge on capital gains	section 45(1)	section 67(1)
Specified agreement	section 45(5A)	section 67(14) to (16)
Computation	section 48	section 72(1); indexed cost for the comparison only, section 72(2)
Previous owner’s cost	section 49(1)	section 73(1), Table serial 1
Cost of property taxed under section 56(2)(x)	section 49(4)	section 73(1), Table serial 17
Cost of a share under a specified agreement	section 49(7)	section 73(1), Table serial 20
Stamp duty value as consideration	section 50C	section 78
Fair market value where consideration not ascertainable	section 50D	section 80
Nil cost of rights	section 55(2)(a)	section 90(3)
Fair market value on 1 April 2001 and stamp duty cap	section 55(2)(b)	section 90(9)(a) and (10)
Exemption on reinvestment in a house	section 54	section 82
Receipt of immovable property without or for inadequate consideration	section 56(2)(x)	section 92(2)(m)(ii), with section 92(3) and (4)
Rate and the 23 July 2024 comparison	section 112(1)(a), second proviso	section 197(1) and (3)
Previous owner’s holding period	section 2(42A), Explanation 1(i)(b)	section 2(101)(c)(B)(I)
Cost reduced on transfer of the new house within three years	section 54(1)(ii)	section 82(1)(ii)
Deduction at source on cash under a specified agreement	section 194-IC	section 393(1), Table serial 3(ii)
Interest claimed under section 24(b) or Chapter VI-A not part of cost	section 48(ii), proviso	section 72(3)(a)
Stamp duty value for land or building held as stock (developer’s side)	section 43CA	section 53 (110 per cent tolerance in sub-section (2); no counterpart of the 120 per cent proviso)
Year of credit for tax deducted	rule 37BA(3)(i) (Income-tax Rules, 1962)	rule 203(5), (6)(i) (Income-tax Rules, 2026)
Repeal and savings	(not applicable)	section 536

The 2025 Act references were checked against that Act’s text on the Income Tax Department’s website.

Continue to Part 2: hardship compensation, corpus, rent and tax deduction at source, Part 3: cash exits, resale and sections 54 and 54F, or Part 4: tenants, slum dwellers, shops, non-residents and the society.

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.