Capital gain tax on JDA

Capital gain tax on JDA

In case of JDA, will the land owner need to pay capital gain for all his share of flats once the completion certificate is received OR he need to pay capital gain when he sells any flats from his share of flats received? If capital gains is paid when completion certificate is received then will he have to pay again when he sells the flats also (2 times)? Owner is having only 1 Residential house and how is capital gains calculated if 2000 sqyards of open land (ancestral property) is given to builder under JDA in April 2018 and builder constructs 20 flats in it and provides possession to owner in May 2020. Owner receives 8 flats as per agreement & the balance to builder. Now if the stamp duty value for 2000 sqyards is 20 lacs and the stamp duty value of all 8 flats received by owner is 100 lacs then what is the capital gains incurred when the possession is provided to owner for 8 flats and what is the capital gain tax if owner sells 1 flat in Aug 2020 & i flat in Aug2022?

Asked 7 years ago in Capital Gains Tax

Dear Sir,

Capital gain will be taxable when the completion certificate will be issued i.e Aug. 2020 and sale consideration will be stamp duty value of 8 flats of Rs. 100 lacs. Cost of acquistion will be share of 8 flats in land or FMV of land if purchased by ancestors before 2001. At the time of sale capital gain will be taxable again and that time sale consideration would be stamp duty value at that time and cost of acquistion would be stamp duty value considered today. You need to pay capital gain twice first against sale of land and second again sale of flats.

For further discussion and clarification you can avail phone consultation on tax full.

Regards

Vivek Kumar Arora

CA, Delhi

5015 Answers

1136 Consultations

Talk to Vivek Kumar Arora

Capital gain would be first levied when completion certificate is obtained. Capital Gains will be 100 lacs - indexed value of 20 lacs.

If one of the flats is sold, then capital gain will be levied again.

Lakshita Bhandari

CA, Mumbai

5687 Answers

942 Consultations

Talk to Lakshita Bhandari

Hi,

Land owner has to pay capital gain tax both the times (I.e. at the time of receipt of completion certificate and at the time of sale of that flat).

Capital gain at the time of completion certificate would be calculated by deducting total land cost from the stamp duty value/market value of flat received by land owner.

Capital gain at the time of sale of any of the flat will be calculated by deducting stamp duty value of the flat(taken at the time of completion) from actual sale consideration.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar

CA, Mumbai

3576 Answers

183 Consultations

Talk to Abhishek Dugar

Hi,

Capital gains, in the case of a JDA is levied both the times (When CC is received and when the flat is sold).

Capital gains in the first instance will be 100-20= 80 lakhs.

When the flat is sold, the capital gains will be the difference between the registered value of the flat and the actual sale consideration.

Hope that clarifies,

Regards,

Nikhil.

Nikhil Khanna

CA, Mumbai

1429 Answers

19 Consultations

Talk to Nikhil Khanna

Thanks for your inputs. Kindly clarify further on below points and confirm if any capital gain exemption can be claimed under section 54F / 54 in the below scenario.
Joint Development Agreement done by Builder with Owner in Apr 2018 for construction of 20 flats on open land.
Completion certificate received in May 2020 and possession given to owner for 8 flats as per agreement.
Stamp duty value of open land in Apr2018 is 20 lacs
Assuming Indexed value of this 20 lacs in May2020 is 22 lacs
Assuming Stamp duty value of all 8 flats received by owner in May2020 is 100 lacs
Query:
1) Capital Gains to be paid once completion certificate received is 78 lacs (100-22). Is my understanding correct? Can any exemption under section 54F be claimed to reduce this tax?
2) If 2 flats are sold in June2020 for 40 lacs from above apartment & taken one new residential house of 40 lacs at other location, then what will be the capital gain tax to be paid and any exemption can be claimed under section 54? Is this STCG or LTCG since the development agreement is done in Apr2018, Completion Certificate is received in May 2020 and sold in June 2020?
3) If 2 flats are sold in May2022 for50 lacs (25 lacs each) from above apartment & taken two new residential houses of 50 lacs (25 lacs each) then what will be the capital gain tax to be paid and any exemption can be claimed under section 54?
4) In order to reduce capital gain by owner what are the other possible methods available? Is there any benefit if gift deed is executed by owner to split the property into multiple owners to reduce tax?

Asked 7 years ago

Dear Sir,

1) Indexed value of land equivalent to 8 flats will be computed.

2) It is STCG and no exemption would be allowed.

3) It is LTCG if period would be more than 24 months and exemption would be allowed.

4) Best way is to split the property by way of gift.

Thanks

Vivek Kumar Arora

CA, Delhi

5015 Answers

1136 Consultations

Talk to Vivek Kumar Arora

Hi,

1) Yes your understanding is correct. Capital gains will have to be paid on 78 lakhs.

2) It will be STCG and no exemption would be allowed.

3) exemption u/s 54 will be allowed since it is LTCG.

4) Yes gifts can be given to relatives as defined by the Income Tax Act to minimise the tax implications. However gift deeds will need to be registered so you will need to do the cost benedit analysis.

Regards,

Nikhil

Nikhil Khanna

CA, Mumbai

1429 Answers

19 Consultations

Talk to Nikhil Khanna

1. Yes.

no exemption

2. No exemption. It will be STCG.

3. It will be LTCG and 54 exemption can be claimed.

4. Gift is no longer an option for tax saving in such cases. The rules for benami transactions gets applicable.

Lakshita Bhandari

CA, Mumbai

5687 Answers

942 Consultations

Talk to Lakshita Bhandari

Hi,

JDA does not assume or concur any liability on account of taxation. It is only an understanding that how the sale proceeds or profits from development shall be shared. Actual tax liability shall accrue only at the time of execution of title deeds and receipts of proceeds therefrom.

As such, your answers are as below:

1. No, Capital Gains tax shall be payable only at the time of receipt of sale proceeds or execution of title deeds, whichever is earlier.

2. For you, means the owner of land, the whole amount shall be LTCG only, irrespective of the fact of JDA or Completion Certificate. If you re-invest the amount in another residential property, benefit u/s 54 shall be applicable. But that is only for one residential property and not multiple.

3. No eligibility for further exemption. As you already invested part sale proceeds in another property.

4) In order to fully claim tax benefits, try to sell the house property at once (means all 8 units) and reinvest the same in another property, single only. Please note that the other property should not be again of JDA nature. Else AO may disallow any benefits and may treat the same as your business income. In present situation also, AO may treat the same as business income as you have actually developed the same with another partner. The cost of units retained by the builder may treated as your cost and 8 units as your sale price.

Regards,

Sunny Thakral

CA, Delhi

231 Answers

8 Consultations

Talk to Sunny Thakral

It seems your query is answered.

Swati Agrawal

CA, Mumbai

1146 Answers

7 Consultations

Talk to Swati Agrawal

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!

Ask a CA