Income Tax on capital gains in case of joint development agreement

By | February 20, 2018
(Last Updated On: February 20, 2018)

CIRCULAR No. 2/2018 Dated 15.02.2018

25. Special provisions for computation of capital gains in case of joint development agreement.

25.1 Under the provisions of section 45 of the Income-tax Act, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of ‘transfer’ includes inter alia any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred. In such a scenario, execution of Joint Development Agreement between the owner of immovable property and the developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project.

25.2 With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, a new sub-section (5A) has been inserted in section 45 of the Income-tax Act to provide that in case of an assessee, being an individual or a Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax 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.

25.3 It has also been provided that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, 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.

25.4 It is also provided that benefit of this regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. It has also been provided that in such a situation, the capital gains as determined under general provisions of the Income-tax Act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed as per provisions of the Income-tax Act without taking into account these provisions.

25.5 Consequential amendment to section 49 of the Income-tax Act has also been made to provide that the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the amount which is deemed as full value of consideration under section 45(5A) of the Income-tax Act.

25.6 Applicability: These amendments will take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.

25.7 A new section 194-IC has also been inserted in the Income-tax Act so as to provide that in case any monetary consideration is payable under the specified agreement, tax at the rate of ten per cent shall be deductible from such payment.

25.8 Applicability: This amendment will take effect from 1st April, 2017.

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