Landowners in JDAs under tax scrutiny for capital gains evasion: Report

For long-term capital gains, the tax rate is set at 12.5 percent, while for short-term gains, rates can range from 10 to 39 percent based on the income bracket of the taxpayer.

Landowners who entered into joint development agreements (JDAs) with builders are reportedly facing heightened scrutiny for potentially avoiding capital gains taxes.

The Central Board of Direct Taxes (CBDT) has directed the Income Tax Department's investigation wing to conduct a nationwide review of cases involving individuals and Hindu Undivided Families (HUFs) who collaborated with builders in JDAs but may not have paid capital gains tax, even after obtaining completion or occupation certificates for their projects, states an Economic Times report.

In an initiative launched at the end of October, the CBDT requested that director generals of I-T investigation agencies across the country compile data on all properties granted Completion Certificates (CCs) or Occupation Certificates (OCs) during fiscals 2020-21, 2021-22, and 2023-24, according to the report. This effort aims to identify and assess cases where tax liabilities on capital gains may have been overlooked or intentionally evaded.

Under Section 45(5A) of the Income Tax Act, property owners involved in JDAs are required to declare and pay capital gains tax upon receipt of the completion certificate, which signifies the point at which the gain becomes taxable. For long-term capital gains, the tax rate is set at 12.5 percent, while for short-term gains, rates can range from 10 to 39 percent based on the income bracket of the taxpayer.

Originally, capital gains tax was due upon signing the development agreement. In 2017, however, the tax regulations were amended to require payment upon project completion, allowing some flexibility for landowners facing cash flow constraints.

Despite this easing, reports indicate that certain landowners continue to evade these taxes, particularly by leasing or renting the developed properties without settling their tax dues.