The owners of the land who are in joint development agreements (JDAs) with builders are facing intensified scrutiny for bypassing capital gains taxes.
The Income Tax Department’s investigation wing has been directed by the Central Board of Direct Taxes (CBDT) to review the matter which comprises engaging the individuals and Hindu Undivided Families (HUFs) who have collaborated with the builders in JDAs though may not have filed the capital gains tax, post receiving the completion or occupation certificates for their projects.
The CBDT in an initiative launched at the finish of October has urged that the director generals of the IT investigation agencies in the country compile data on all the properties granted Completion Certificates (CCs) or Occupation Certificates (OCs) during fiscals 2020-21, 2021-22, and 2023-24, as per the report. The same measure has the objective to determine and evaluate the matters in which the tax obligations on the capital gains may have been ignored or evaded with intent.
Property owners Under Section 45(5A) of the Income Tax Act, engaged in the JDAs are mandated to declare and pay the capital tax on the receipt of the completion certificate, which specifies the point at which the gain becomes levied to tax. the tax rate for long-term capital gains is set at 12.5% and for short-term gains, the rates can vary from 10 to 39 percent based on the income bracket of the assessee.
On signing the development agreement the capital gains tax was obligated. The tax statutes in 2017 were revised to mandate the payment on the finish of the project, permitting certain flexibility for the landowners who are facing limited cash flow.
Even after facilitating the same, the reports specify that specific landowners carry on to evade such taxes, specifically via leasing or renting the developed properties without settling their tax liabilities.
Under JDA the land owner gets his percentage share by way of unsold finished flats. To full fill the obligation of paying Capital gains tax he has no other go than selling major percentage of Flats in his share. 1. This rule should be changed by government and the land owner should be allowed to pay CGT on the flats whenever he sells them in future.
2.Further he has to sell some more flats to pay GST @12% nett on the flats value.
3. Third point is that he is jointly responsible for any structural damages along with the builder as per RERA act.
So the whole excercise of flats construction under JDA hits the land owner by way Capital gains tax, GST, and responsibility under RERA without any money in his hand. To meet all these obligations he may have to sell atleast 50 % of the flats he is getting under JDA from the builder.
Hence it is better to go for outright sale of land to the builder instead of involving in JDA and this trend is sure to be followed in coming years when the land owners comes to know of these money draing obligations. Entering into JDA is a total loss to the land owner. JDA is profitable to Government by way of enormous taxes and good profit to builder as he is not investing in land.