Chargiability of amount received for vacating the premises

[Guest]

Amount received from shop owner by the shop tenant for vacating the premises is chargeable to income tax?If yes, how?Please clarify.

[Brijesh Verma]

Dear Sujit Ji This transaction amounts to 'Transfer' under section 2(47)(ii) of the Income Tax Act as there is a 'EXTINGUISHMENT OF ANY RIGHT THEREIN'. The amount may well be subjected to Capital Gain Tax.

[Guest]

Many many thanks for the reply.One more thing which I need to clarify as there is no amount involed which can be classified as Cost of Acquisition,can the rent pad to landlord be treated as Cost of acquisition/improvemnet or the entire amount will be taxable as Capital gain?

AI Summary

Payment for Vacating Rental Property May Trigger Capital Gains Tax Under Income Tax Act Section 2(47)(ii) A forum participant inquired about the tax implications of receiving a payment for vacating a rental property. A respondent explained that such a transaction is considered a 'transfer' under the Income Tax Act, specifically section 2(47)(ii), due to the extinguishment of rights, making it potentially subject to Capital Gains Tax. The inquirer further questioned whether rent paid to the landlord could be considered as the cost of acquisition or improvement, or if the entire amount should be taxed as capital gain.