Taxation of Flat and payment receivable on Joint Development Agreement with the Builder
I have entered in to an Agreement of Development with a builder in Nagpur on 16/06/2022 on following terms:
- The total deal value was fixed for ₹ 2.48 Cr for the entire transaction for transfer of my land with existing building, sheds and structure thereon. Against ₹ 2.48 Cr, the developer will be giving me one flat. The value of the flat has been fixed at ₹ 72 Lakh. Balance ₹ 1.76 Cr is payable in cheque.
- The Stamp Duty value of the property if it would have been sold at the time of agreement of development was ₹ 2.18 Cr.
- The building is expected to be completed within 18 months i.e., by December-2023.
- The schedule of payment of ₹ 76 Lakh is as under:
a) ₹ 1 Lakh on 16.06.2022
b) ₹ 50 Lakh on 31.12.2022
c) ₹ 50 Lakh on 31.03.2023
- d)₹ 75 Lakh on or before 30.09.2023.
- All the payments are subject to Tax Deduction at Source (TDS) @ 10%.
- The builder has honored the commitment as far as first 2 payments of ₹ 1 Lakh and ₹ 25 Lakh is concerned. The builder has paid the amount after doing TDS of ₹ 10K & ₹ 5 Lakh.
- The third installment has been paid on 11.05.2023 after TDS of ₹ 5 Lakh.
- The construction work is in full swing and it is expected that the scheme will be completed before schedule time and my flat may also be handed over by September-23.
- The property was inherited by me on the demise of my father in the year 1987. The property was purchased by my father in 1979 and house construction was done in 1984.
I am confused about the tax implication on the above transactions. My questions are as under:
- I have handed over the possession of my old house in the FY 2023-24. Whether the capital gain tax liability will be there in the FY 2023-24 when I gave the possession? Whether it is to be offered for taxation on a proportionate basis?
- What will be the tax treatment while filing IT return for the A Y 2023-24 as my TDS of ₹ 5.10 Lakh is there in 26AS? I can claim the refund of TDS in FY 2023-24?
- Tax treatment for the year when the scheme will be completed and possession of the flat will be given to me?
- On which amount my tax liability will arise i.e., on ₹ 2.48 Cr or ₹ 1.76 Cr or ₹ 1.18 Cr? [email@example.com]
- There is a special provision in the Income Tax Act-1961 which provides for taxation of the Joint Development Agreement (JDA). It is contained in section 45(5A) which is introduced in 2017 to remove the genuine & practical hardships faced by Individual / HUF entering into JDA.
- Pursuant to section 45(5A), individuals/ HUF who enter into JDA are liable for capital gains taxation in the year in which the certificate of completion is issued by the competent authority. As a result of section 45(5A), the tax liability gets deferred from the year of mere signing the documents or handing over of possession to the year of completion of construction.
- Before coming to your specific query, let me discuss about the key feature of scheme of taxation as provided by Section 45(5A) as under:
a)Timing of Taxation:
The liability to pay capital gains tax now will arise only after the project is ‘completed’. The capital gains will be chargeable to tax in the year in which the certificate of completion is issued by a competent authority for theentire or a part of the project.
b) Amount of sale consideration:
For levy of tax, the sale consideration in the hands of the property owner is aggregate of-
(a) Stamp duty value of the property received by the property owner from the builder as his share in the developed property on the date of issue of completion certificate and
(b) amount received in cash/cheque etc
c)Owner should not sell the completed portion before completion certificate:
This benefit will not be available if the owner transfers his share in the project to another person before the issue of completion certificate. In such a situation, the capital gains will be taxable in the year in which such transfer took place.
d)Tax Deduction At Source (TDS):
TDS is applicable on the payment to be done by the developer to the property owner pursuant to JDA. TDS is @ 10% on such payments.
- In your specific case,
a) Timing of Taxation:
There is no concept of proportionate taxation in case of JDA signed by the owner of the property. The capital gain tax liability would arise in the financial year 2023-24 (AY: 2024-25) when the completion certificate will be issued and the possession will be handed over to you by the builder.
b) Sale Consideration:
Sale consideration would be the Stamp duty valuation of the flat as on the date of completion certificate plus Cash consideration of ₹ 1.76 Cr receivable by you.
c) Cost of Acquisition:
The property was originally acquired by the father prior to 2001. The FMV as on 01.04.2001 will be deemed as the cost of acquisition in your hands also & will be eligible for indexation benefit also
d) Computation of Capital Gain
The difference between the sale considerations as computed in (b) above & indexed cost of acquisition as computed in (c) above will be the amount of Long Term Capital Gain (LTCG).
e) TDS of ₹ 5.10 Lakh as reflected in Form No. 26AS of FY 2022-23:
You should not claim the credit of TDS of ₹ 5.10 Lakh as reflected in the Form No. 26AS of the FY 2022-23 and may carry forward for claiming it in the FY 2023-24 when the transaction would be taxable.