An intending buyer paid Rs 1,51,000 as advance for purchase of a house in August 2025 and later defaulted; the owner forfeited the advance. In the owner's hands the forfeited advance is:
AA deduction from the cost of acquisition of the house
BA capital receipt not chargeable to tax
CIncome from Other Sources of the year of forfeiture
DCapital gains of the year the house is eventually sold
Answer & Solution
Correct answer: C. Income from Other Sources of the year of forfeiture
1. The treatment of forfeited advance money turns on the date of forfeiture.
2. Advance forfeited on or after 1.4.2014 is taxable as Income from Other Sources under section 56(2)(ix) in the year of forfeiture.
3. Since it is taxed under section 56(2)(ix), it is NOT reduced from the cost of acquisition when the asset is later sold — that avoids double taxation.
4. Option A describes the old regime (forfeiture before 1.4.2014, section 51); it no longer applies to a 2025 forfeiture.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 65_
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