Readers' Corner: Tax

I am giving my plot to a developer. He will construct a building on the land parcel and give me three flats in return. Will this transaction attract any tax?

As per Section 45(5A) of the Income-Tax Act, 1961, in case a person who owns a land agrees to allow another person to develop a real estate project on such land in consideration of a share (cash/building ), there would be a capital gain income in the hands of such individual transferring the land/land rights. However, the income shall be considered as taxable in the year in which the specified authority issues the certificate of completion for the whole project and not in the year of transfer of such land. 

In your case, being a Joint Development Agreement (JDA), this transaction falls under section 45(5A) of the I-T Act and accordingly, you may be liable to capital gain tax in the year in which the competent authority issues completion certificate of the project in respect of construction of the three flats on your plot.

For computing the capital gain, the sale consideration will be the stamp duty value of your share in the constructed area (three flats) on the date of issue of completion certificate plus any cash consideration you might have received. However, indexation benefit shall be applied only till the year in which you transferred the plot and not till the year in which the certificate is issued. In future, if you decide to sell the flats you received under this agreement, the cost of acquisition of these flats shall be the full value of consideration as calculated by you above at the time of computing the capital gains.  

Kuldip Kumar
My uncle wants to gift me a property. It is in lieu of some arrangement my father had with him. If my uncle gifts me a property, will it attract tax? If yes, can he gift my father the property who can later bequeath it to me?

Under Section 56 of the I-T Act, any sum of money or property received without any consideration is taxable in the hands of the recipient, if the value of such receipts in aggregate exceeds Rs 50,000 during the year. Property for this purpose means immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art or bullion. Further, it is clarified that any sum of money or property received from a relative or on the occasion of marriage or under the will or by way of inheritance is not taxable in the hands of recipients. The term relative has also been defined under section 56 and includes brother/sister (along with their spouse) of either of the parents of individual/spouse and any lineal ascendant/descendant of the individual/spouse. 

In your case, considering your uncle falls under the definition of relative, property received from him by you would not be taxable in your hands. Also, it is not to be considered as a transfer for capital gain taxation. Once you decide to sell this property, it would trigger capital gains tax liability in your hands. The I-T Act further provides that in case of a gift, to calculate the gain, the cost acquisition to the previous owner is considered to be the cost of acquisition and the holding period of the previous owner is also added to the holding period of existing owner to determine the long-term or short term capital gain. It is also essential for you to preserve the related documentation such as gift deed, etc, evidencing that you received this property from specified relative as a gift. It would be helpful where your tax return is selected for scrutiny and questions are raised by the tax authorities on the same.

In case uncle does not fall under the specified relative category, any receipt of property from him shall be taxable in your hands. Even if your father receives the same from him in such a situation, it will be taxable in his hands. However, any gift from your father to you shall be exempt.

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