BUDGET 2017 - Relief for landowner in joint development
The Budget has proposed that in the case of a joint development agreement in the development of property, the liability to pay capital gains tax will arise in the year the project is completed and not before. Under the existing provisions of the Income Tax Act, capital gains are taxable in the year in which the transfer takes place, except in certain cases.
`Transfer' is an arrangement where some rights are given for the performance of the contract. The legal title may not have been transferred. In such a scenario, execution of the joint development agreement between the owner of the land and the developer triggers the capital gains tax liability for the owner in the year in which the possession of the land is handed over to the developer for development of the project. This has also been a subject of litigation in courts. The landowner was supposed to pay tax even before getting possession of built-up property or receiving consideration for the transfer.
Now, the Budget has sought to clarify the position of the landowner. It has been proposed that when a person enters into a joint development agreement for the development of a project, the capital gains will be taxable in the year in which the certificate of completion for the entire or a part of the project is issued by a competent authority. It won't be at the time of signing of the agreement itself. The decision addresses the issue faced by a landowner in paying capital gains tax in the year of transfer before receiving any returns.
In addition, the stamp duty value of the landowner's share of land, building, or both in the project, on the date of issue of the certificate of completion, plus any monetary consideration received, will be treated as the full value of the consideration for the transfer of the property.
The Budget also restricts the ambit of this benefit. This benefit will not apply when the landowner's share in a project has been transferred to another person before the date of issue of the certificate of completion. In such a situation, the capital gains will be determined according to the normal income tax provisions. The income will be taxable in the year in which the transfer took place without considering the new provisions.