The decision to tax capital gains on Joint Development Agreement (JDA) upon completion of the project is being hailed as a great move. Thus, it is imperative to understand it in greater detail.
Till now, under Section 45, capital gain was chargeable to tax in the year in which transfer takes place except in certain cases.
Now, the definition of ‘transfer’ includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred.
In such a scenario, execution of Joint Development Agreement (JDA) between the land owner and the developer makes the capital gains tax liability in the hands of the former in the year in which the possession of immovable property is handed over to the developer for development of a project.
In order to make the law friendlier for land owners, a new sub-section has been introduced in the budget. It is proposed to insert a new sub-section (5A) in Section 45 so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be charged 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.
- Additionally, it is also proposed that the stamp duty value of his share (land or building or even both) on the date of issuing of the completion certificate as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing because of the transfer of the capital asset.
- The Finance Bill also proposed that the benefit of this move will not apply to an assessee who transfers his share in the project to another person on or before the issuing of the certificate of completion. In such a scenario, the capital gains will be calculated without considering the updated provisions.
- The Bill also proposed to define the following terms “competent authority”, “specified agreement” and “stamp duty value” for this purpose.
- An amendment in Section 49 in also proposed. As per this, the cost of acquisition of the share in the project in the hands of the land owner shall be the amount which is deemed as full value of consideration under the said proposed provision.
When will these amendments come into effect?
These amendments will take effect from 1st April, 2018 and will apply in relation to the assessment year 2018-19 and subsequent years.