JV with Builder - Timing and Computation of Capital Gain

JV with Builder - Timing and Computation of Capital Gain

Input:
1. Jointly own land and duplex with relative for more than 25 years.
2. Joint Venture with Builder for 4 flats, one each for me and relative, one to builder who can pocket the sale and 4th one to be sold to third party with proceeds shared by three (me, relative & builder).
3. Construction will take 15-18 months. Each buyer gets 25% UDS (12.5% from me and 12.5% from my relative)

Question:
1. Is capital gain only for the sale value of land quoted on the UDS registration? OR for the UDS Sale value plus market value of new flat to be owned by me?
2. Is each UDS registration that could take place months apart considered different sales and therefore have different capital gains dates? what if one is before March 21 2021, and the other in next financial year?
3. If UDS registration date(s) determine capital gains date, am I supposed to pay the tax soon though I am yet to receive all monies which is after completion of construction?
4. If I pay tax now, can builder stop deducting TDS on remaining money to be paid?
5. Is the current property with building(fully demolished by builder) treated as sold and new flat to be owned by me treated as new property bought for sec 24 exemption?
6. Will market value of new flat with UDS value be treated as cost-basis for a future sale?

Capital Gain = Sale(how is value arrived) - Cost(50% of my land value or 50% of my total cost or 100% of cost since building is no more).

Asked 5 years ago in Capital Gains Tax

Dear Sir,

Hope you are doing well !!

Taxation under the JDA Joint Development Agreement is different as compared to normal capital gain.

Here Sec. 45(5A) comes to the scenario. As per Sec. 45(5A), Capital Gain arising under JDA are taxable in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority. And the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset

Then further Capital Gain liability would arise on the sale of the floors in the year of the actual sale, Sale Consideration would be actual sale proceeds received and the cost of acquisition would be the Stamp Duty Value considered at the time of completion certificate.

It is advisable to take a phone consultation for detailed discussion.

We may assist you in entire procedure.

Payal Chhajed

CA, Mumbai

5189 Answers

303 Consultations

Talk to Payal Chhajed

Dear Sir,

Capital Gain is computed on total sale proceeds received from the sale of property net of cost of transfer/sale, Cost of Improvement and acquisition of Property. Any UDS which is transferred after 31 March 2021, will be treated in next financial year.

Thanks & Regards

Shiv Kumar Agarwal

Dear Sir,

Since the TDS was deducted an amount of Rs. 400000 in F.Y. 2017-18, TDS might have either adjusted with the tax Payable or refunded while filing the Income Tax return for F.Y. 2017-18. So, the same cannot be claimed again.

Thanks & Regards

Shiv Kumar Agarwal

CA, Delhi

489 Answers

74 Consultations

Talk to Shiv Kumar Agarwal

Capital gain under JDA would be covered under section 45(5A) of the Income tax act.

The sale consideration here would be the value of flat you are getting less value of share of land you let go to builder.

Further the capital gain on transfer of UDS would be considered once the builder gets completion certificate unless you sell your share before that.

As mentioned above capital gain needs to be paid when the builder gets completion certificate.

Section 24 is for deduction of interest and other such deduction it doesn't provide any exemption.

Sale value would be determined based on sale value of similar flats being sold to outsiders by builder.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo

CA, Jaipur

4306 Answers

102 Consultations

Talk to Naman Maloo

Hello,

Sec. 45(5A) would be applicable for the capital gain arising due to the JDA.

The stamp duty value of the building, of the landowner’s share in the project/developed estate, on the date of issuing of the certificate of completion by the competent authority, as increased by any monetary consideration received by the landowner, if any, shall be deemed to be the full value of the consideration received. Since the land was acquired before 1 April 2001, the cost of acquisition would be the Fair Market Value of the land as on 1st April 2001 which would be indexed till the year of issue of the completion certificate for the indexed cost of acquisition, to be deducted from the sale consideration to arrive ar the capital gain amount.

On the further sale of the 4th flat, sale consideration would be the actual consideration received and cost would be the stamp duty value considered at the time of completion certificate.

I hope this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Hunny Badlani

CA, Madhya Pradesh

2608 Answers

16 Consultations

Talk to Hunny Badlani

The income arising to the developer under a JDA, in the form of sale consideration of his share in the developed estate is considered as his business income and is taxed as per the applicable provisions.

The income arising to the landowner arising on transfer of title of land under a JDA, either in the form of specified share in the sale consideration or in the form of specified share in the developed estate, is considered as capital gain in his hands.

The taxability of capital gains in the hands of the landowner, arising on transfer of title of land from the land owner to the developer in a JDA has always been a litigative issue.

Calculation of Capital gains will be sale consideration less cost of transfer less indexed cost of acquisition less indexed of improvement.

Karishma Chhajer

CA, Jodhpur

2452 Answers

29 Consultations

Talk to Karishma Chhajer

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