Joint development of vacant land along with a builder for constructing apartments is of recent phenomena. This arrangement is done by land owner offering the land to the builder through an agreement and construction is done by the builder at his cost. Transfer of property happens by selling undivided share of land to the prospective buyers of the flats by separate registration. But through construction agreement and tripartite agreement, flats are sold for total value of land and building. There is mutual agreement between land owner and the builder to share the number of flats in agreed ratio say 50: 50 or 60:40 etc. In such cases how the land owner has to calculate gain on his property for long term capital gain?
Section 45(5A) of the Income Tax Act, 1961 introduced by Finance Act, 2017 provides for determination of capital gains where land and building are sold together under a specified agreement (JDA). This sub-section was introduced to minimise the genuine hardship that a land owner being an individual may face, in paying capital gains tax since definition of the term “transfer” includes an arrangement where any rights are handed over in execution of part performance of a contract even though legal title is not transferred. While capital gains has to be computed based on whether the transfer (sale of flat) took place before or after the issue of certificate of completion, section 45(5A) will be applicable only when the transfer takes place after issue of certificate of completion.
Where the flat is sold after issue of certificate of completion, the value of consideration would be stamp duty value as on date of issue of certificate of completion; cost of acquisition would be the Indexed Cost of Acquisition of the Land or FMV as on 01.04.2001, whichever is higher proportionate the number of flats sold (assuming the sale of all flats do not happen at the same time); the resultant capital gains / loss would need to be considered in the FY in which certificate of completion is issued.
Total consideration (A) Stamp duty value on the date of issue of completion certificate plus cash consideration received, if any
Less: Cost of acquisition (B) Indexed Cost of Acquisition of Land or FMV as on 01.04.2001 whichever is higher Proportionate to the number of flats sold
Capital Gains / Loss (A) – (B) Taxable in the year in which certificate of completion is issued
Where the transfer of ownership of the property (individual flats in this case) takes place on or before issue of certificate of completion, then capital gains would be taxable in the financial year in which the flats are sold; cost of acquisition would be the Indexed Cost of Acquisition of the Land or FMV as on 01.04.2001, whichever is higher proportionate the number of flats sold (assuming the sale of all flats do not happen at the same time) and consideration would be the stamp duty value as on the date of sale plus cash consideration received, if any:
Total consideration (A) Cash consideration received
Less: Cost of acquisition (B) Indexed cost of acquisition of land or FMV as on 01.04.2001, whichever is higher proportionate to the number of flats sold
Capital Gains / Loss (A) – (B) taxable in the year in which the flats are sold (Transfer of ownership)
My father (since deceased) had invested in physical shares in the 1970s. Consequent to demat being introduced, the shares were dematted. He had shifted demat account/trading account on a few occasions and the above shares have travelled from one DP to another. Consequent to his demise, the shares were transmitted in my name. In the absence of purchase price, how to calculate the tax implications if i sell the shares now?
Cost of acquisition of listed equity shares acquired prior to January 31, 2018 would be the higher of—the cost of acquisition of such asset; and lower of—the fair market value of such asset; and the full value of consideration received or accruing as a result of the transfer of the capital asset. In this case, since the shares were purchased prior to January 31, 2018, fair market value of the shares as on January 31, 2018 can be considered as the cost of acquisition.
The writer is Partner, Deloitte India. Send your queries to email@example.com