Compensation For Delay In Flat Possession Not Taxable Under Section 50C, Rules Mumbai ITAT

In a significant ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that compensation received for delay in construction or delivery of a flat cannot be taxed under Section 50C of the Income Tax Act. The tribunal clarified that such compensation is distinct from sale consideration and does not attract stamp valuation provisions.

The tribunal also emphasised that the delay compensation is essentially a form of interest paid by the builder for the inconvenience caused to the homebuyer due to delayed possession. As such, it is taxable under ‘Income from Other Sources’, in line with provisions applicable to interest income, and is subject to tax at the individual’s slab rate.

Commenting on the ruling, Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, said the dec