land given for development to a developer
This query is : Open
14 February 2010
If a developer develops a land of some others(generally this happens in real estate business) what are the tax consequences in the case of developer and the land owner?
Below are my doubts in a case....
This is a case where the land of Mr X was given to a developer Mr Y in the year June 2008 under GPA for construction of flats for sale. As per the agreement the land owner is to receive 2 flats after the construction i.e., April 2009. The rest are to be with the developer for sale.
In this case... Is Mr X chargeable to capital gains? then which amount is to be taken as sale consideration... his land market value or the market value of 2 flats received ? and when he is liable to pay tax?
In the case of Mr Y... does there any issue of capital gains? If not then in the year 2008-09 as there is only construction and no sale, is it right to transfer his construction cost to WIP ? In the year 2009-10 he sold the rest of the flats with him.... so the entire sale value of flats including land value should be taken as business income?
Kindly any one give clarity to me in this regard.
Thanking you
Below are my doubts in a case....
This is a case where the land of Mr X was given to a developer Mr Y in the year June 2008 under GPA for construction of flats for sale. As per the agreement the land owner is to receive 2 flats after the construction i.e., April 2009. The rest are to be with the developer for sale.
In this case... Is Mr X chargeable to capital gains? then which amount is to be taken as sale consideration... his land market value or the market value of 2 flats received ? and when he is liable to pay tax?
In the case of Mr Y... does there any issue of capital gains? If not then in the year 2008-09 as there is only construction and no sale, is it right to transfer his construction cost to WIP ? In the year 2009-10 he sold the rest of the flats with him.... so the entire sale value of flats including land value should be taken as business income?
Kindly any one give clarity to me in this regard.
Thanking you
14 February 2010
Dear friend
The tax treatment in the hands of Mr. X:
As this is development contract give my Mr. to Mr. It does create the transfer of assets. But as per case laws the cost of acquisition of land is cost of acquisition of two flats. How do proportionate this cost may be based on some basis like square feet basis or area of flat basis. The capital gain chargeable to tax when flat is sold and not on received flat in exchange of land
The tax treatment in the hands of Mr. Y:
It’s a normal business of Mr. Hence normal accounting policies is applied. Mr. Y must show WIP if construction not completed in 08/09. The sale value of two flat is cost of land and not market price.
The above opinions are my personal opinion and subject to change depend upon exact situation.
The tax treatment in the hands of Mr. X:
As this is development contract give my Mr. to Mr. It does create the transfer of assets. But as per case laws the cost of acquisition of land is cost of acquisition of two flats. How do proportionate this cost may be based on some basis like square feet basis or area of flat basis. The capital gain chargeable to tax when flat is sold and not on received flat in exchange of land
The tax treatment in the hands of Mr. Y:
It’s a normal business of Mr. Hence normal accounting policies is applied. Mr. Y must show WIP if construction not completed in 08/09. The sale value of two flat is cost of land and not market price.
The above opinions are my personal opinion and subject to change depend upon exact situation.
15 February 2010
Thank you Sir
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