capital gain

This query is : Resolved

fak_ca (Querist)

04 April 2010 kindly advice me

my client have got a residental property in south delhi, he want to give this property to a builder to construct flats on the same, of the flats to be build by him some will be retained by him and remaining to be handed over to my client, the builder will also give some monetary consideration to my client

i want your advice on the implication of capital gain on the same.

thanks

Rasesh

Rasesh (Expert)

04 April 2010 The owner of the land will give land to the developer for development and in exchange get some flats instead of cash. The land owner should enter into an agreement with the developer with this intent. The proportion of flats that would be handed over back to the owner should be mentioned in the agreement itself.

If the land owner does not sell any flat but simply rents them out then there is no case of capital gain tax on the same.

He may convert the land into stock in trade from the date when he has handed over the possession to the developer. The value of the land will get locked upto this date.

If he sells the flats, then the consideration should be broken in two parts: 1) Consideration for land on the basis of the land rates prevailing in the area 2) Consideration for the flat built up area. The capital gain will be attracted on the land price whereas the flat will have business profits.

Other option is to sell the land to the developer in lieu of the flats and pay tax on the sale of land. The flats are to be purchased from the developer at low rates. They can be held as capital assets and sold only after three years of possession. This will make them long term assets and the tax would be long term capital tax on which lower rates are applicable.

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