Taxation on joint development of property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 December 2018 Hoping to get this best answered!!

Background:
We are in the process of getting our ancestral property which consists of land and building, promoted by 4 legal heirs.
We have approached a promoter who has offered to construct 6 flats in total , of which the promoter retains 2 and delivers the remaining 4 flats to the 4 legal heirs. Now the promoters pays a upfront cash component and rent for the period of construction.
Also understand that If one of the legal heirs delivers the right of his property , the property can be marketed by the promoter himself, so the promoter would market 3 flats instead of 2 in the above case.
We also have a licensed surveyor valuation certificate for the land and building as of 2001, for indexation purpose.

My Question is
..How is capital gains calculated in the following 3 scenarios if the legal heir decides to sell

1 Through the promoter-.( Promoter markets the legal heirs flat )
2 When the Legal heir decides to sell by himself, before completion certificate is obtained.
3 When the Legal heir decides to sell by himself ,immediately after the completion certificate is obtained and the flat is delivered.( Does this attract short term capital gains tax?)

Thanks

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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01 December 2018 1 and 2 capital gain arise in the year of transfer of land.
3 capital gain arise in the year of completion of building.
No short term capital gain if flat is sold in the year of completion.

Execution of joint development agreement between the owner of the immovable property and the developer gives rise to capital gains tax liability in the year in which the possession of immovable property is handed over to the developer for development of project .The receipt of consideration (share of constructed area or share in revenue) in future, does not affect the timing of the taxable event.

With a view to minimize the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, a new sub-section (5A) in section 45 of the Act has been inserted through Finance Act,2017 so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or the part of the project is issued by the competent authority. However, the provisions of this sub section shall not apply where the assesse transfers his share in project on or before the date of issue of the said certificate.

Also, Finance Act 2017 has provided that the stamp duty value of land or building or both, in the project on the date of issuing of said certificate of completion given to the land owner as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

Querist : Anonymous

Querist : Anonymous (Querist)

01 December 2018 Thank You for your response.Appreciate it.
Further to your points I understand that for points one and two, the date of transfer of land is the incidence of capital gain calculation , How is the sale value of land ascertained as there is no certainty of cash consideration received..Is the market value of the land deemed to be the sale value when the transfer is made to the promoter
.( If Legal heir share of flat is sold one or two years down the line). I am specific since sales during construction period are mostly not lump sum cash consideration and might take time to find a buyer.
Also with regard to indexation, is ancestral building cost considered as of 2001 apart from land?

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