jv-tax implications on promoter's share sale

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Querist : Anonymous

Querist : Anonymous (Querist)

25 March 2015 JV-Tax Implications on Promoters Share Sale

In the case of a joint-venture with area sharing with the promoters how is the sale of the promoter's share treated and does that sale proceeds of the promoter's share does it have any implication on the landowner as far as income tax and capital gains is considered?

Querist : Anonymous

Querist : Anonymous (Querist)

26 March 2015 And if the whole sale proceeds (both the landowners and promoters share sale) is liable on the Landowner then what is the best way to avoid Capital Gains Tax especially for the amount of the Sale Proceeds of the Promoter(in case the ratio is high as 50:50). For example instead of a JV if the land was sold outright the land owner can avoid tax legally by investing the Sale proceeds in various schemes/bonds approved by the government.

Querist : Anonymous

Querist : Anonymous (Querist)

01 April 2015 Experts kindly help.

Querist : Anonymous

Querist : Anonymous (Querist)

09 April 2015 No experts to help?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 In a joint venture (JV) scenario where there is area sharing between the landowner and the promoters, the tax implications on the sale of the promoter's share and its impact on the landowner's tax liability depend on several factors. Here’s a detailed explanation:

### 1. Sale of Promoter's Share:

- **Capital Gains Tax:** When a promoter sells their share in the JV, the profit or gain arising from this sale is subject to capital gains tax in the hands of the promoter.

- **Tax Treatment:** The capital gains will be classified as either short-term capital gains (if the shares are held for less than 3 years) or long-term capital gains (if held for 3 years or more). The applicable tax rates for short-term and long-term capital gains will apply based on the holding period and the residential status of the promoter.

### 2. Impact on Landowner:

- **Indirect Impact:** The sale of the promoter's share does not directly impact the landowner’s tax liability on their share of the JV. The landowner's tax obligations are primarily related to their own share of income or capital gains arising from the JV arrangement.

- **Taxation of Landowner's Share:** The landowner will be liable for tax on their share of income or gains from the JV as per their respective ownership and profit-sharing agreement. This could include rental income, profit from development, or capital gains on their share of the land.

### 3. Joint Sale Proceeds:

- **Capital Gains on Entire Sale:** If the entire JV project (including both the landowner's and promoter's share) is sold together, the calculation of capital gains tax will be based on the total sale proceeds and the respective cost of acquisition for both parties.

- **Tax Planning for Landowner:**
- **Indexation Benefit:** If the landowner's share is sold after holding for more than 3 years, they can avail indexation benefit to reduce the capital gains tax liability.
- **Exemptions Under Section 54/54F:** Like in the case of outright sale of land, the landowner may be able to claim exemptions under Section 54 or 54F of the Income Tax Act by reinvesting the capital gains in specified assets (like residential house property or specified bonds) within the stipulated time frame to avoid capital gains tax.
- **Other Tax Planning Strategies:** Consultation with a tax advisor or Chartered Accountant can help identify other strategies to legally minimize tax liability, such as investing in capital gain bonds or exploring other exemptions available under the Income Tax Act.

### Conclusion:

In summary, while the sale of the promoter's share in a JV will attract capital gains tax for the promoter, the landowner's tax liability is separate and depends on their own share of income or gains from the JV. The landowner can explore various provisions under the Income Tax Act, such as exemptions under Section 54 or 54F, to minimize capital gains tax liability on their share of proceeds from the JV. Professional advice is recommended to structure transactions and investments in a tax-efficient manner.

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