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LONG TERM CAPITAL GAIN on PLOT in consideration of PLOT

soniya (Article) (26 Points)

02 August 2023

My client has 4500 sq ft PLOT having purchase price(FY 2013&14) of Rs.2250000 which now he enters into joint venture with builder .... & builder now in return gives flat in consideration of 4500 sq. ft , the value of which is Rs. 35000000.(FY 2022-2023).
So would it attract capital gain?
if so what is capital gain tax?

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8 Replies

Prashant Daga (194 Points)
Replied 02 August 2023

Yes capital gain tax attract and in this ltcg @ 20% applicable

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CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 03 August 2023

Yes capital gains will arise

Mahesh Shah (2308 Points)
Replied 03 August 2023

Here qs arises if it is a joint venture with developer and not a SALE.....how it can be regarded as Capital gain??
capital gain is on sale & not in case of joint venture
pl take help of experienced professional who will guide in proper way

sabyasachi mukherjee (27403 Points)
Replied 03 August 2023

Any transfer of capital asset , capital gain depending upon the tenure.

CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 03 August 2023

Capital Gains Arising out of Joint Development Agreements- Section 45(5A) of the Income Tax Act

The real estate transactions involving a JDA will certainly fall under the purview of the above clauses (v) & (vi). Thus, the term “transfer” will include any agreement for joint development entered between the land owner and the builder/ developer. Now the question arises about the taxability of JDAs under the head “Capital Gains”.

Refer to Section 45 of the Income Tax Act, the taxability under the head “Capital Gains” arises in the year in which the transfer of capital assets takes place (with certain exceptions). Therefore, the liability for capital gains tax arises in the hands of the land owner in the year in which he enters into a joint development agreement. This view was affirmed by judicial fora in various judgments.

Thus, according to Section 45(5A), the capital gains would arise in the hands of the land owner in the year in which the completion certificate is issued by the authority on completion of the project or part of the project, as the case may be. Section 45(5A) can be summarized below:

Section 45(5A) is applicable to individuals/ HUF landowners
Applicable where the capital asset subject to transfer under the JDA is land or building or both
Applicable only when there is a ‘Specified Agreement’. Specified Agreement means a registered agreement in which the land owner (individual or HUF) allows the builder/ developer to develop a real estate project on land or building, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.
In the case of JDAs, the liability for capital gains tax arises in the year in which the project is completed/ partially completed. However, according to the proviso to section 45(5A), where the land owner transfers his share in the project before the date of issuance of the completion certificate, the capital gains shall be deemed to be the income of the year in which he transfers his share in the project.

Amendment in Section 45(5A) by Finance Act 2023
Presently, Section 45(5A) of the Income Tax Act provides that capital gain shall arise in the hands of an individual/ HUF on the transfer of land or building or both, under a specified agreement (JDA) and shall be chargeable to income tax in the year in which the certificate of completion for the whole/ part of the project is issued by the competent authority.

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Mahesh Shah (2308 Points)
Replied 03 August 2023

True.....then agt must state JDA and simply not joint venture
in above case only joint venture is stated?

CA. Sourav Sarkar (Chartered Accountant ) (24583 Points)
Replied 03 August 2023

Yes it is applicable in this case as there is transfer of plot to builder, but in this case builder gives flat but not build anything on the plot

sabyasachi mukherjee (27403 Points)
Replied 04 August 2023

Sec 45(5A) applies to this joint development agreement but one pertinent point in whose books
taxability in the hands of assesse in whose name?
If there are two joint owners say A @ B , taxability arises on A . If land is developed jointly and the entire project is a joint development project then it's a joint project.Taxability will be shared by both.
In the year in which it is completed.
Sec 45(5A) applies to these type of joint development projects.