A Bengaluru landowner who surrendered a part of his property for road development and widening later sold the Transferable Development Rights (TDRs) received in return for the surrender.
He disposed of the TDRs for ₹6.02 crore and has now been instructed to pay capital gains tax. However, the capital gains tax he will pay will be offset by relief on the cost of the surrendered land, as per a by The Times of India.
In an order dated 14 August 2026, the Income Tax Appellate Tribunal (ITAT), Bengaluru, heard the case based on the facts and rejected the landowner’s argument that the proceeds were exempt from taxation as the TDRs had no ascertainable acquisition cost.
Still, it instructed the to consider the cost attributable to the land surrendered when calculating taxable capital gains.
Why did the ITAT rule the TDR sale taxable?
The landowner, as per the facts of the case, had surrendered 2,839 square metres of land to the Bruhat Bengaluru Mahanagara Palike (BBMP) for road development and widening. In return, he received TDRs. These are nothing but rights that permit eligible holders to construct additional units on eligible properties and to sell them to other builders.
Subsequently, he sold the acquired TDRs to a builder for ₹6.02 crore. After the sale, he treated the proceeds as a non-taxable capital receipt. The Income Tax Department disputed this treatment, and the National Faceless Appeal Centre rejected his appeal in July 2025.
Furthermore, inresolving the dispute, the that the TDRs were ‘capital assets’ acquired in exchange for identifiable land. As the transaction involved the transfer of property in return for development rights, the tribunal held that subsequent sale attracted capital gains tax under the applicable .
Why the entire ₹6.02 crore may not be taxable
Now, while rejecting the exemption claim, the tribunal also found that the AO had failed to account for the cost that is attributable to the surrendered land.
It instructed the AO to consider this cost, along with other applicable deductions that were permitted under Section 48 of the , when computing the taxable capital gain.
What are the key takeaways for taxpayers?
This is an important ruling that highlights an essential difference: It shows that the sale proceeds are not necessarily the same as taxable capital gains. That is why taxpayers who receive TDRs in exchange for land should, therefore, carefully maintain relevant property documents and records.
Furthermore, in case of doubts, they should seek professional advice on the tax-related implications before proceeding with the filing of their returns.
Disclaimer: This article is only for general informational purposes and does not constitute tax or legal advice. Consult a qualified tax professional and a legal advisor for appropriate guidance and advice based on your individual circumstances.