HARISH RAO | Founder | sawdust.co.in | India

Harish Rao is a Chartered Accountant by qualification, an analyst by hobby and a journalist by profession. His interest in architecture and interior design moved beyond the four walls of his own home when he was asked to head an architecture monthly a decade ago. Since then, he has been keeping a tab on each and every development in the field.

Apart from giving impetus to providing affordable housing to the needy, the latest Budget also contains several provisions regarding capital gains, joint development of property, indexation of property and treatment of house property held as stock-in-trade, which need careful scrutiny. Details mentioned in Budget Memorandum gives a clear picture, which was not available just by hearing out the Finance Minister’s Speech.

For example, the Finance Minister has reduced holding period for considering gain from immovable property to be long-term from present three years to two years. However, to qualify as long term capital asset, the immovable property should be land or building or both. Thus, if one buys an under construction house and holds it for two years and sells it thereafter, he cannot claim benefit under this section if construction is not complete and if he has not received the possession. It should be noted that reduction in holding period is applicable only for land or building and not regarding any property rights.

Joint development of property where (usually) land owner enters into an agreement with a developer to develop his property has also received some relief in the latest budget. At present capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. Under this provision tax is payable in case of 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. Even making power of attorney by the land owner in favour of the developer used to be treated as transfer by the Income Tax department and the assessee used to be taxed accordingly. However, the latest budget provides 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 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.

The new provision also provides that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. However, benefit of this proposed regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. It is also provided that in such a situation, the capital gains as determined under general provisions of the Act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed as per provisions of the Act without taking into account this proposed provisions.

It should be noted that in many parts of the country like in Mumbai there is a practice of issuing occupation certificate and completion certificates. Many developers just take the occupation certificates and do not bother to take completion certificates just to avoid paying many local fees or cess. In such cases, the latest provision may only lead to more litigations as it is applicable only after obtaining completion certificate. It may be in the interest of everyone if the government comes out with suitable clarification to clear the air.

Clarification is all the more necessary as the government has also stated that after one year of the end of the year in which completion certificate is received tax on notional rental income will be levied. What if the developer only obtains occupation certificate and doesn’t bother to obtain completion certificate? Going by what is stated in the Budget Memorandum, developer can avoid paying tax on income of his stock-in-trade just by not obtaining completion certificate!