The Income Tax (I-T) department has intensified its scrutiny on landowners who entered into joint development agreements (JDAs) with builders, focusing on potential tax evasion on capital gains. These investigations are being driven by the Central Board of Direct Taxes (CBDT), which has directed its investigative wings across major cities to gather data on projects that received completion or occupation certificates (CC/OCs) during the financial years 2020-21, 2021-22, and 2022-23.
Landowners who collaborate with developers under JDAs are legally obligated to pay capital gains tax under Section 45(5A) of the Income Tax Act. This tax is calculated based on the difference between the indexed acquisition cost of the land and the value of consideration received, typically a mix of cash and developed property. Depending on the holding period of the property, the tax rate is either 12.5% for long-term gains or falls under varying slabs for short-term gains. In a significant policy shift introduced in 2017, the government allowed tax payments to be deferred until the issuance of CC/OCs, offering relief to landowners who were previously required to pay upon executing JDAs. Despite this concession, many landowners, particularly those leasing or renting properties after project completion, have failed to meet their tax obligations.
The ongoing investigation aims to uncover instances where landowners may have bypassed tax payments despite profiting from JDAs. This move reflects the government’s intent to close tax loopholes in the booming real estate sector, where capital gains from JDAs form a significant revenue source. As the Income Tax department ramps up its data collection efforts, experts anticipate stricter enforcement measures. While this could ensure better compliance, it also raises concerns about potential legal and financial complications for stakeholders involved in JDAs. The outcomes of this crackdown are expected to set a precedent for how tax compliance in joint development projects is handled in the future.
