Transit Rent Is Not Taxable, So It Does Not Attract TDS

There are a lot of people who receive transit rent from developers while their property is being redeveloped. This trend has caught on across the country, and the receipt of such rent provides relief while the new property is being constructed. However, the taxation aspect of this was often a cause for worry, but the good news is that any transit rent receipt will not put any tax burden on the individual. The amount would not be taxable, and there would not have to be any tax deduction at source, or TDS, on it.

Here is a look at the entire matter in detail.

It is important to understand the actual meaning of transit rent which is given to people.

Take a case where a person owns a property in a housing society and the society decides to go in for redevelopment. Under redevelopment the original owners of the houses get a new house in return and the builder or the developer gets additional space which can be sold to other buyers.

Since this would involve demolishing the old property and the construction of the new one the existing owners need to move elsewhere while the construction is on. This causes a lot of hardship not only physically but also financially as they would have to live somewhere on rent.

To mitigate this issue the developer gives transit rent for the time period that the new property is constructed.

One of the first questions that arise when the transit rent is received is about the nature of the receipt.

The rent can be received for a long period of time which can be a few years till the time that the new property is constructed. Due to this the nature of the amount and whether this is taxable would become an important thing. Several cases in the Income Tax Appellate Tribunal as well as a recent Bombay High Court judgement has ruled that such income is capital receipt.

This is different from it being a revenue receipt as a capital receipt is not considered as a regular receipt and in turn it would impact the nature of the taxation of the income.

Since the transit rent is a capital receipt and not a revenue receipt there is no tax liability that will be witnessed when such a rent is received.

A capital receipt is not considered as income and in this case this is received for the inconvenience and the hardship that has been caused to the property owner for the time that they have to leave their home.

Thus, this is not an income and hence there would not be any tax impact as this is not classified as income. The question that often arises is whether such rent that has to be paid would have an element of tax deduction at source in it. Since there is no income there is not going to be any tax deduction too and the individual will receive the full amount of the transit rent that they are supposed to receive without any cut due to TDS. This is beneficial for both the receiver and the payer. The receiver does not have any amount deducted and the payer does not have to undertake the work of cutting taxes and then paying this to the central government.

Arnav Pandya is founder of Moneyeduschool