• Capital Gain Tax - Land sharing agreement

Hello - I am getting into an agreement with a builder to give him POA & JDA. I have two options. Assume land value is 1 CR, building 10 units and total sales price is 10 CR. So my share is 2 units and builders is 8 units

a) Option 1: Agree on 20:80 model between landowner and builder. So my understanding is that the day I get possession of first unit I am liable to pay the tax for the two units. even though I did not get possession for the second unit. in this case I will get possession only after 36 months according to the current projection, so my tax liability will be after 6 months. Please confirm.

b) Option 2: I am asking the developer to share the revenue i.e 20% from the day he takes booking. So I will get the revenue from day 1 of booking. Can you please help me understand the tax treatment in this scenario. My specific questions are if I get 2 lakh in year 1, will I be liable for the tax on entire projected amount. Secondly will I be charged GST for this amount.
Asked 1 month ago in Capital Gains Tax

As per section 45(5A) capital gain shall be taxable in the year in which the project gets completion certificate.


If you go in the second scenario then I need to check the agreement and other details because then in that case that might be a business income rather than capital gain.


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
3949 Answers
58 Consultations

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W.e.f. AY 2018-19, section 45(5A) has been introduced for computation of capital gain in ase of JDA. As per section 45(5A), capital gain shall be taxable as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority subject to fulfillment of the below mentioned conditions.  Point of taxation is the year in which completion certificate will be issued


Condition 1: The assessee (i.e. land/building owner) is an Individual or HUF.

Condition 2: The assessee has entered into a "specified agreement" with a builder/joint developer for development of housing project. 


From 01.04.2019, builder is liable to pay GST under RCM on the units unbooked on the date of issue of the completion certificate.


For detailed discussion you may consult telephonically.

Vivek Kumar Arora
CA, Delhi
4337 Answers
461 Consultations

5.0 on 5.0

Dear Sir,


In reference to your query, please note that Section 45(5A) has been introduced in the Income tax Act w.e.f. AY 2018-19, which provides for the computation of capital gains in case of JDA and states that the same would be taxable in the year in which CC is received.


However please note that this benefit would be available only in case the landowner is an individual/HUF.


In so far as GST applicability is concerned, in relation to agreements executed on or after 1st April 2019, in case of provision of development rights given by the landowner to the developer, the same is taxable under RCM on unsold units portion in the hands of the developer in case of residential projects.

While for the construction service being provided by the developer to the landowner, GST is leviable @ 5%/1% on the basis of 1st independent sale made by the developer. In this case however, a benefit has been provided to the landowner that if he sells his units to another buyer before receipt of CC, then landowner would be eligible to avail ITC of the GST so paid by him to the developer subject to the condition that the value at which the flat is bring sold by the landowner to another buyer is than the value at which tax was collected from him by the landowner.


In your case, GST would arise should you opt for option 1.

NO GST on your part would arise if you go for revenue sharing model.


Please advise in case of any further clarification.


Thanks & Regards,

CA Aditya Dhanuka.


Aditya Dhanuka
CA, Kolkata
49 Answers
2 Consultations

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