5 Reasons Property Owners Must Stay Compliant with Capital Gains Tax in Builder Deals

1. Joint Development Agreements (JDAs) Under the Tax Lens

The Income Tax (I-T) department is closely scrutinizing landowners who entered into Joint Development Agreements (JDAs) with builders but may have avoided paying capital gains tax. This move follows instructions from the Central Board of Direct Taxes (CBDT) to gather data on properties that received Completion or Occupation Certificates (CCs/OCs) during the financial years 2020-21, 2021-22, and 2022-23.

Owners of such properties are required to pay tax on the gains derived from their agreements with developers.

2. Legal Obligations Under Section 45(5A) of the I-T Act

Landowners are legally required to pay capital gains tax once a CC/OC is issued. Capital gains tax is calculated as the difference between the indexed acquisition price of the property and the consideration received from the builder, typically a mix of cash and property units. For long-term gains, the tax rate is 12.5%, while short-term gains are taxed according to the individual’s income slab, ranging from 10% to 39%. This obligation ensures transparency and adherence to tax laws.

3. Relaxation on Tax Payment Post-2017

In 2017, a regulatory change allowed landowners to defer tax payments until they receive a CC/OC. While this offered relief to property owners dealing with cash flow issues, many have exploited this provision, renting out or leasing properties without settling their tax liabilities. This non-compliance has led to significant revenue loss for tax authorities.

4. Monitoring Challenges for Tax Authorities

Municipal authorities issue thousands of CCs/OCs annually, but the tax department lacks a seamless mechanism to monitor this data. While property registrars share JDA information with the I-T department, there is no integration with municipal corporations for CC/OC data. This gap has resulted in tax evasion worth thousands of crores, prompting calls for improved data-sharing frameworks.

5. Penalties and Future Risks for Non-Compliance

The CBDT has issued a strong reminder for taxpayers to pay deferred taxes promptly to avoid penalties. Non-compliance can attract legal actions, making it imperative for property owners to fulfill their tax obligations. Authorities are exploring ways to integrate data from municipal bodies to tighten oversight, leaving little room for evasion in the future.

Key Points Property Owners:

• Ensure timely payment of capital gains tax after receiving a CC/OC.
• Familiarize yourself with Section 45(5A) of the I-T Act to understand your obligations.
• Avoid penalties by staying compliant and settling dues as per regulations.
• Monitor municipal data-sharing developments to stay updated on compliance requirements.
• Seek professional advice to calculate and pay taxes accurately.
• By adhering to these guidelines, property owners can safeguard themselves against penalties and contribute to a fairer taxation system.