Re-development of buildings – Tax Aspects

1.1 With increase in population and people migrating from rural areas, demand for urban housing is increasing and urban area is running out of land. It is estimated that there are more than 52,000 slums in India, with more than 8 million dwelling units. Out these 17,000 slums with more than 3 million dwelling units belongs to Maharashtra.

1.2 In view the fact that land cannot be created; supply of land for new construction would be from:

a)      Redevelopment of old buildings, 

b)      Development of slums.

c)       ‘Supply from old mills and salt pans’ - in cities like Mumbai

However environmental disquiet has held the plans for developing salt pans. Hence currently redevelopment of chawls, dilapidated building, some crumbling co-operative societies and slums would drive the market.

1.3 Redevelopment of old structures involves various complicated and peculiar regulatory and tax issues. Important parties to the redevelopment scheme are:

i)        Land owners / society;

ii)       Tenants / flat owners / dwellers / society members;

iii)     Developers

iv)     Various Governmental agencies.

However for the purpose of taxation we are concern with tax issues that may surround first three parties only. Tax implication on developers are specifically not dealt herewith since all the expenses incurred by the developer would be in the ordinary course of business and no specific tax issues arises merely on undertaking redevelopment. Though there are various industry specific issues which arises on all types of construction. During the course of re-development of society, society and / or members are in receipt of sum in one or the other form.

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