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Capital Gain Tax on Joint Development Agreement : Only Taxability is postponed and not the date of Transfer
Income Tax Act now provides a special provision for taxation of Joint Development Agreement by way of section 45 (5A).
Joint Development Agreement (JDA) is a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash.
As per the provisions of section 45, capital gain is chargeable to tax in the year in which the transfer takes place except in certain cases.
Sec 45(5A) provides for postponing the taxability of capital gains in case of a specified agreement.
Where the capital gain arises to the assesse, being an individual of HUF, from the transfer of capital asset, being land or building or both, under a specified agreement, the capital gain shall be chargeable to income tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
Specified agreement is a registered joint development agreement in which one party is the owner of a land or building or both and another develops the real estate project on such land or building and consideration is payable in the form of a share in the developed land or building.
The exception to this postponement of taxability is where the assesse transfers his share in the project on or before the date of issue of said certificate, the capital gains shall be deemed to be the income of the previous year in which such transfer takes place.
For the purpose of section 48, the Stamp Duty Value of his share, on the date of issue of said certificate, as increased by the consideration received in cash, if any, shall be deemed to be the full value of consideration.
7As per section 194-IC, if under a joint development agreement any developer pays an amount to the land owner in addition to the share in project, such developer shall deduct TDS @ 10% on such payment.
It is important to note that only taxability is postponed and not the date of transfer as per Sec 45(5A).
So the determination of whether the asset is a short term or long term or for the purpose of indexation, it should be with reference to the date of purchase and the date of transfer and not the date of taxability i.e., date of issue of completion certificate.
Similarly, a conservative approach would be to consider the cost inflation index of the year of transfer and not taxability for calculating the indexed cost of acquisition.