Sold property but received money in instalments? ITAT explains when you must pay income tax on capital gains

A developer's tax reporting can create complications for property owners when the amount reported for tax deduction at source does not match the money actually received during the year. A recent Income Tax Appellate Tribunal (ITAT) ruling has highlighted why such discrepancies need to be examined before treating the entire reported amount as taxable income.

The Surat bench of the ITAT has deleted a ₹2.45 crore capital gains addition against a landowner after finding that he had received only ₹25 lakh from a property developer during the relevant financial year, even though ₹2.86 crore was reflected against his name in Form 26AS.

In Hiteshkumar Mohanlal Desai vs Assessment Unit, Income Tax Department (ITA No. 962/SRT/2025), pronounced on 29 September 2026, the tribunal held that the addition was not sustainable after considering the actual receipts, the subsequent years' tax returns and the treatment followed in the cases of the other co-owners.

The taxpayer jointly owned a non-agricultural land parcel measuring approximately 12,363 square metres in Kachigam, Nani Daman, along with his three brothers. The four co-owners had entered into a registered development agreement with Param Corporation for a total consideration of ₹24 crore.

During the financial year 2017-18, the taxpayer claimed to have received only ₹25 lakh from the developer. However, the developer deducted TDS of ₹2,86,250 against a reported amount of ₹2.86 crore and furnished the corresponding details in its TDS return.

The higher amount subsequently appeared in the taxpayer's Form 26AS, which records tax deducted at source against a taxpayer's PAN.

The taxpayer claimed TDS credit of only ₹25,000, corresponding to the ₹25 lakh actually received during the year. He carried forward the remaining TDS credit of ₹2,61,250 to subsequent years.

The taxpayer had initially not filed his income tax return for assessment year 2018-19. Following reassessment proceedings initiated by the tax department, he filed a return declaring total income of ₹23.93 lakh, including long-term capital gains of ₹23.47 lakh.

However, the assessing officer treated the entire ₹2.86 crore reflected in Form 26AS as consideration attributable to that financial year. After recomputing the capital gains, the officer made an addition of ₹2.45 crore to the taxpayer's income.

The Commissioner of Income Tax (Appeals) subsequently upheld the addition, prompting the taxpayer to approach the ITAT.

Before the tribunal, the taxpayer argued that the amount reflected in Form 26AS did not represent the consideration actually received during the relevant financial year.

He submitted that the subsequent payments received from the developer had been disclosed in the respective income tax returns for assessment years 2019-20 to 2022-23. The corresponding capital gains had also been offered to tax in those years.

The taxpayer furnished copies of the subsequent returns and details of the receipts to support his argument. He also pointed out that his three brothers, who were co-owners of the property, had followed the same method of reporting capital gains based on the receipts in different years. The tax department had accepted their treatment in reassessment proceedings.

The revenue department, meanwhile, relied on the orders passed by the lower tax authorities.

After examining the submissions and documents, the ITAT observed that the taxpayer had actually received ₹25 lakh during the relevant year and had declared the corresponding capital gains. It also noted that the remaining receipts had been offered to tax in subsequent years and that the department had not disturbed those disclosures.

The tribunal further found that the other co-owners had followed the same treatment, which had been accepted by the tax authorities.

Considering these facts, the bench held that the ₹2.45 crore addition made by the assessing officer was not sustainable and deleted it. The tribunal accordingly allowed the taxpayer's appeal.

The ruling highlights the importance of reconciling Form 26AS with actual bank receipts and the income reported in income tax returns, particularly in property transactions involving development agreements and staggered payments.

A higher amount reported by a developer for TDS purposes should not automatically be assumed to represent the amount received by a landowner during that particular financial year. Taxpayers should maintain copies of development agreements, payment schedules, bank statements, TDS certificates and year-wise income tax returns to establish when consideration was received and how the related income was disclosed.

However, the ruling should not be interpreted as a general rule that capital gains from property transactions are always taxable only when the money is received. The tribunal's decision was based on the specific facts, including the subsequent tax disclosures and the treatment of the other co-owners.

Property owners should therefore examine the terms of their agreements and the applicable capital gains provisions before deciding the year in which income is taxable.

Kirti jha

Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.

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