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Property - Development Agreement

Anand S (Accountant) (23 Points)

25 November 2018

Mr A and Mr B is having a piece of open land approx 1200 sq ft.
I am entering into an agreement for purchasing the said land and constructing a 4 floorey building on the land.
The cost of construction will be borne by me and after the construction is completed, the floor area of 2nd & 3rd floors will be gifted to Mr A and Mr B.

The construction is supposed to be completed within 24 months and the floor ares of Ground & 1st floors will be sold immeditely i.e within 24 months

What will be the income taxes for me, Mr A and Mr B...?

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3 Replies

A B Kundu (Professional) (1422 Points)
Replied 25 November 2018

Please clarify whether the Property in the question is to be treated as your Stock in hand, i.e., whether you are into the business of purchase and selling of house property. If this is your business, then under the Income from PGBP head your income will be calculated.

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Anand S (Accountant) (23 Points)
Replied 25 November 2018

I am not into the business of purchase and selling of house property, I am an employee of PSU.

A B Kundu (Professional) (1422 Points)
Replied 25 November 2018

So that means the land and property is to be treated as Capital Asset in your hand, hence Capital Gain tax will be attracted. In your hand - The Actual Sale value or Valuation made by the Stamp Valuation Authority whichever is higher will be treated as the Full Value of Consideration irrespective of the fact that you didn't receive any consideration unless they are falling under the definition of "Relative". Against this, you shall be eligible to deduct the cost of acquisition and improvement. The balance amount will be taxable. As you are transferring all the floors within 24 months, hence it would be Short Term Capital Gain. In the hands of A and B - Assuming that they are not "Relative" of you - a. At the time of selling the Land to you Capital Gain tax will be attracted. All provisions related to the Capital Gain will be applicable. b. At the time of receiving the Floor as Gift from you - The value provided by the Stamp Valuation Authority would be taxable in their hand under the head "Income from Other Sources" if such value exceeds Rs.50,000.

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