Construction
This query is : Resolved
CA Ashwani Agarwal
(Querist)
18 December 2012
I have a 500 yard plot. There is another person having a 500 yard plot right next to me.
Now we both want to construct a property in it. It is just a single project and we dont want to do it after that.
Should it be converted into a partnership and land be transferred to it or can we do the same as co ownership by spending equal amount and sharing the sale proceeds.
Now we both want to construct a property in it. It is just a single project and we dont want to do it after that.
Should it be converted into a partnership and land be transferred to it or can we do the same as co ownership by spending equal amount and sharing the sale proceeds.
Amol S Joglekar
(Expert)
18 December 2012
Both ways have its own merits and demerits. Income tax may NOT be the sole consideration. The cohesive bond which exist amongst both may play a vital role in this.
CA Ashwani Agarwal
(Querist)
18 December 2012
Well, all other things are in place. The other person has no problem in any option. This is our responsibility and our main consideration is Income Tax.
Amol S Joglekar
(Expert)
18 December 2012
Keeping land rights intact, you can think of selling the constructed super structure on perpetual lease basis. This will not involve any capital gain as land is not being transferred. Construction sale shall be taxed as business income. Your views please CA Ashwani.
CA Ashwani Agarwal
(Querist)
18 December 2012
We dont want to keep the land rights intact, we want to sell it outright.
There is no problem in giving capital gains (but will those be long term or short term?
should we show the cost of construction as Improvement cost
or should we bifurcate the same into long term of land and short term for property?
There is no problem in giving capital gains (but will those be long term or short term?
should we show the cost of construction as Improvement cost
or should we bifurcate the same into long term of land and short term for property?
Amol S Joglekar
(Expert)
18 December 2012
Land sale is capital gain. Cost of construction can not be claimed as improvement cost.
CA Ashwani Agarwal
(Querist)
18 December 2012
Then will construcction be sold as short term capital gain?
Amol S Joglekar
(Expert)
18 December 2012
business income... it can fall under adventure in the nature of trade.
CA Ashwani Agarwal
(Querist)
18 December 2012
And why can the same not be justified under Short Term Capital Gain.
Or under Cost of Improvement?
Or under Cost of Improvement?
CA Ashwani Agarwal
(Querist)
18 December 2012
And if we show that in any head (other than cost of improvement), then how to bifurcate the proceeds into land and construction?
Amol S Joglekar
(Expert)
19 December 2012
Ready reckoner value can be a good basis for valuation of land.
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