Development agreement of agricultural land and its taxation.

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ankush (Querist)
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14 August 2015

Please suggest

an assesee( farmer )has entered into the development agreement. The land is rural agricultural land. The developer has given him 6 flats out of 12.

How to give effect as per income tax act ?

Other important detail

development agreement date: 5 aug 2011

Land government value:Rs 2000000 as mentioned in development agreement.

Development: cost: Rs 2400000 incurred by deveoper

Flats allocation date 10 july 2014

Sale of 6 flats by farmer in january 2015 for Rs.12000000

I want to know ?

Short term capi gain or long term capital gain?

which is The date for calculating the period of holding of asset ?

Date of the of allotment of flat or date of development agreement.

what is The cost of flat ?

G v of land or half of cost of development ?

It will be good if you make the calcualtion.

I am expecting your suggestions.

😊

ankush

ankush (Querist)
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14 August 2015 Please reply

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2024 In the scenario you've described, where an agriculturist (farmer) enters into a development agreement with a developer and receives flats in exchange for agricultural land, the taxation implications under the Income Tax Act need to be considered. Here's a detailed explanation and calculation based on the information provided:

### Short-term or Long-term Capital Gain:

1. **Date of Allotment of Flats:**
- The period of holding of the asset (flats) will determine whether the resulting gain is short-term or long-term.
- For determining the period of holding:
- **Date of Allotment of Flats**: 10th July 2014
- **Date of Sale of Flats**: January 2015

Since the flats were sold in January 2015, the holding period is less than 3 years (less than 36 months). Therefore, the gains will be considered as **short-term capital gains**.

### Calculation of Capital Gains:

2. **Cost of Acquisition:**
- As per the provisions of the Income Tax Act, when agricultural land is transferred under a development agreement, the cost of acquisition of the asset received (flats) is considered as **fair market value (FMV)** of the land on the date of transfer.

3. **Fair Market Value (FMV) of Agricultural Land:**
- Government value of land as per agreement: Rs. 20,00,000

4. **Calculation of Capital Gains:**

- **Full Value of Consideration (FVC)**: Rs. 12,00,000 (consideration received from sale of 6 flats)

- **Cost of Acquisition**: FMV of land = Rs. 20,00,000

- **Capital Gain**: FVC - Cost of Acquisition

Capital Gain = Rs. 12,00,000 - Rs. 20,00,000 = **(-) Rs. 8,00,000**

Since the amount is negative, it implies there is a loss on the sale of the flats.

### Tax Treatment:

- **Tax Treatment of Capital Loss**: According to the Income Tax Act, capital losses can be set off against any other capital gains arising in the same year. If there are no capital gains in the same year or if the losses exceed the gains, they can be carried forward to future years for set off against capital gains.

### Conclusion:

Based on the details provided:
- The transfer of agricultural land under the development agreement resulted in the receipt of flats.
- The period of holding for the flats was less than 3 years, making the capital gains short-term.
- The cost of acquisition of the flats is considered as the fair market value of the agricultural land on the date of transfer.
- The calculation shows a capital loss due to the difference between the consideration received and the cost of acquisition.

It's advisable to consult with a tax advisor or chartered accountant to ensure compliance with all tax laws and to accurately calculate the capital gains or losses based on the specific circumstances of the transaction.

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