Redeveloped gifted property: Do you need to pay long-term capital gains tax?

In the case of redevelopment of a flat by an individual or an HUF, the “transfer” is deemed to occur in the year in which the completion certificate for the redeveloped property is issued by the local authority.

Balwant Jain

December 12, 2025 / 08:27 IST

Tax treatment of redeveloped property

When a gifted property goes into redevelopment, many owners are unsure about the holding period rules and potential capital gains tax. Today's Ask Wallet Wise query explains how the tax law treats gifted assets and why, in most such cases, no tax is payable during redevelopment.

Ask Wallet-Wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

My mother has gifted me her flat in Mumbai through a registered gift deed dated August 4, 2025. She had originally purchased this flat in September 1993 out of her own self-acquired funds. The flat, which originally measured 355 sq ft, is currently under redevelopment, and due to FSI benefits, the new flat to be allotted will measure 472 sq ft. However, I have also opted to purchase an additional 23 sq ft, due to which I will receive a new flat admeasuring a total of 495 sq ft.The developer has scheduled our Permanent Alternate Accommodation Agreement (PAAA) registration for January 2026. I am required to make the payment for the additional 23 sq ft along with the proportionate stamp duty charges. My query is: from a long-term capital gains perspective, do I have to wait for 24 months and complete the holding period of two years before proceeding with the PAAA registration? What will be my tax liability for this transaction? Should I defer the PAAA registration until August 2027, or can I go ahead with the registration since this flat was acquired by way of a gift?

Expert's Advice: When computing the holding period to determine whether the capital gains are long term or short term for an asset received through a gift or inheritance, the period for which the asset was held by the previous owner is also included. In such cases, the holding period starts from the date on which the earlier owner acquired the asset for consideration. Since your mother acquired the flat in 1993, your holding period is counted from 1993.

As your combined holding period, including your mother’s period of ownership, exceeds 24 months, the flat already qualifies as a long-term capital asset. Therefore, any profits on sale or transfer will be treated as long-term capital gains.

In the case of redevelopment of a flat by an individual or an HUF, the “transfer” is deemed to occur in the year in which the completion certificate for the redeveloped property is issued by the local authority. For a redeveloped flat, long-term capital gains are considered to have been reinvested into the new flat received in exchange for the old one. Individuals and HUFs are eligible to claim exemption under Section 54 and therefore do not have any tax liability on the redevelopment transaction.