• Capital Gains Tax Implications under Collaboration Agreement

I purchased a 500 sq yd plot in 2003. I have entered into a Collaboration agreement with a builder to build 4 floors out of which I will keep 2 floors plus I will get some cash. When I sell my 2 floors, the circle rate will apply for arriving at sale consideration. But how will the cost of the finished floors be arrived at for computing CGT. Will it be indexed cost of land plus construction cost? If yes, what document do I need to satisfy the ITD for the cost of construction of my 2 floors. FYI, the builder will get billing for material/labour for the entire project in his own name.
Asked 4 years ago in Capital Gains Tax

When you sell your 2 floors in future then the cost of acquisition will be the stamp duty value of the 2 floors considered at the time of calculating gain for JDA arrangement.

Vivek Kumar Arora
CA, Delhi
4493 Answers
621 Consultations

5.0 on 5.0

Please let us know when did you enter into a joint development agreement with builder.

If you have entered into a JDA before 1.4.2017 then, you were liable to pay capital gain tax at the time of entering into JDA with the builder. Capital gain will be sales consideration (i.e. cash plus fair market value of the 2 flats) minus indexed cost of land.

If you have entered into JDA after 2017 then capital gain will be applicable at the time of completion of Construction.

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

4.8 on 5.0

Hi

As per the new amendment, capital gain tax is levied at the time of completion of the JDA project.

Only cost of acquisition shall be allowed after indexation.

So, capital gains would be SDV of 2 floors as reduced by the indexed cost of acquisition of land.

I assume JDA is entered into post new amended law.

Lakshita Bhandari
CA, Mumbai
5660 Answers
817 Consultations

5.0 on 5.0

The cost of acquisition will be the stamp duty value of the 2 floors at the time of calculating gain for JDA arrangement.

Regards,

Nikhil.

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

Your sale proceeds (A) shall be SDV as calculated above.

Cost of acquisition (B) shall be indexed cost of land.

Capital Gains would be (A-B)

No cost of construction allowed for you.

Lakshita Bhandari
CA, Mumbai
5660 Answers
817 Consultations

5.0 on 5.0

The sale proceeds would be the SDV as computed above. There will be no benefit of construction costs in your case.capital gains will be computed as sales - indexed cost of acquisition.

Regards,

Nikhil

Nikhil Khanna
CA, Mumbai
1429 Answers
19 Consultations

4.8 on 5.0

Dear Sir,

Calculation of capital gain at the time of JDA

Full value of consideration would be SDV of 2 floors received in consideration against the transfer of land and any amount received in cash.

Cost of acquisition would be cost of land equal to 2 floors and any expenditure incurred by you actually on construction of 2 floors. In case of JDA entire expenditure on construction is borne by builder.

Calculation of capital gain at the time of actual sale of 2 floors.

Full value of consideration would be SDV at the time of sale.

COA would be SDV considered at the time of JDA.

Thanks

Vivek Kumar Arora
CA, Delhi
4493 Answers
621 Consultations

5.0 on 5.0

Hi,

Your Capital Gains shall be calculated as below:

1) Transfer of 2 Floors to builder/ his assignee/ nominee + Cash Received

Sale Consideration = Stamp Duty Valuation of 2 Floors + Cash received

Cost of acquisition = Proportionate Cost of Construction of 2 Floors (out of total 4 Floors constructed by builder) + Indexed Cost of acquisition of land

Difference would be Capital Gains and LTCG Tax shall be calculated thereon @20%

2) Sale of remaining 2 Floors by you

Sale Consideration = Actual amount received or Stamp Duty Valuation of 2 Floors (whichever is higher)

Cost of acquisition = Proportionate Cost of Construction of 2 Floors (out of total 4 Floors constructed by builder) + Indexed Cost of acquisition of land

Difference would be Capital Gains and LTCG Tax shall be calculated thereon @20%

(Proportionate Cost of Construction would be calculated as per the cost of builder. It is assumed that instead of paying in cash for that cost, you have given away the transfer of 2 Floors)

Regards,

Sunny Thakral
CA, Delhi
224 Answers
8 Consultations

5.0 on 5.0

Hi,

For JDA Transaction, cost will be indexed value of land and sale value will be circle rate. Hence, it will not make your capital gain zero.

No, you will not get the cost of construction benefit.

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

4.8 on 5.0

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