Capital Gain – Joint Development agreement –Budget 2017.

Currently in case of joint development agreement between the owner of immovable property and the developer, the capital gain tax liability arises in the hand of owner in the year in which the possession of immovable property is handed over to the developer for development of project.

Under the existing provision, capital gain is chargeable to tax in the year in which transfer takes place expect in certain cases.

“Transfer”: includes 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.

Thus with a view to minimise the hardship which the owner of land may face in paying capital gain tax in the year of transfer, Budget 2017 propose to insert new sub section 5A under section 45.

Ø It provides that in case of assesse being individual or 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.

Ø It is further proposed to provide 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.

Ø It is also proposed to provide that benefit of this proposed regime shall not apply to an assesse who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. It is also proposed to provide that in such a situation, the capital gains as determined under general provisions of the 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 Act without taking into account this proposed provisions.

Ø It is also proposed to define the following expressions "competent authority", "specified agreement" and "stamp duty value" for this purpose.

Ø It is also proposed to make consequential amendment in section 49 so as 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 the said proposed provision.

Explanation:

(i)                “competent authority” means the authority empowered to approve the building plan by or under any law for the time being in force

(ii)             “specified agreement” means a registered agreement in which a person owning land or

building or both, agrees to allow another person to develop a real estate project on such land or building or both, 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;

(iii)           “Stamp duty value” means the value adopted or assessed or assessable by any authority of Government for the purpose of payment of stamp duty in respect of an immovable property being land or building or both.’

The above amendment will applicable from previous year 2017-18 and subsequent years.