Section 45(5A) - Specified Agreement - Capital Gains Taxation

• Section 45(5A) of the Income Tax Act, 1961 talks about taxability in case of specified agreements or joint development agreements. 

• Specified agreements refer to agreements wherein one person having land or building or both allows another person to develop a real estate project on that land or building and in consideration of it, gives a share being land or building or both in the project to the land owner in return. 

• Contrary to what is contained in section 45(1), this section provides for taxability in the year other than the year in which the asset is transferred. 

• This section is only applicable in case of individual or HUF. 

• Transfer of asset as per section 2(47) occurs when the possession of immovable property (land or building or both) is handed over to the builder.

• But capital gains liability under this section would arise in the year in which certificate of completion for the whole or part of the project is issued by competent authority. 

• Full value of consideration for the purpose of section 48 is the Stamp Duty Value of the share in project of the land owner as on the date of issue of certificate of completion ➕ cash consideration received, if any. 

• Section 49(7) prescribes that the cost of acquisition of such share in project received by the land owner shall be the amount deemed as full value of consideration in section 45(5A).

• The above provisions will not be applicable in the case when land owner or assessee transfers his share in project on or before the date of issue of certificate of completion. 

• In such a case, the normal provisions of capital gains taxability shall apply. 

• Capital gains liability shall arise in the year in which transfer took place i.e. in the year in which possession of plot is handed over to the builder.