Joint Development and Capital Gains Tax

Hello Sir,

I am a resident of Chennai.

I own an old independent residential house on 1 ground land. I have decided to give it for "Joint Development". The Builder is going to construct 6 new Flats in this land and I will get 3 flats out of it.

I have decided to retain 2 flats out of these 3 for myself, and sell the 3rd one.

a) Do I have to pay Capital Gains Tax for this sale?

b) If so, in order to seek exemption from Capital Gains Tax, I kindly request the following clarifications:-

After selling this one Flat, how much time do I have to purchase another property to seek this exemption?

c) Also, can I purchase ANY TYPE OF PROPERTY, including House (Old / New / Independent / Semi-Independent) Flat (Old / New) Land Resorts Commercial Building, Shops etc. or should I purchase only a specific type of property to seek this exemption?

Requesting your kind help, P. Ram Kumar

asked Mar 27 '12 at 15:45 by Ram Kumar 0113


Income tax liability would arise on basis of how this transaction is executed on paper.

If you have transferred old house to builder first and then got three flats registered in your name later, it would be considered as sale of property and then again purchase of other properties.

Long term gains would be computed with this method:
Purchase Year = A, Purchase Cost = P, Cost Inflation Index (CII) for purchase year = X
Sale Year = B, Selling price = Q, CII for sale year = Y
Indexed Purchase price = P x (Y/X) = R
Long term capital gain = Q - R = S
Income tax on capital gain = S x 20%

As new flat transferred to you is sold before three years, this would be short term gains and no income tax benefit would be applicable on such sale.

As your case is complex and it all depends on transaction documents, I would advise you to consult an experience tax professional or CA.

answered Mar 27 '12 at 17:42 by Pankaj Batra 5.2k320

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Hello Mr. Pankaj Batra, I thank you for your kind reply. I am confused and will follow your advice in consulting an experienced Tax Professional. You are doing a noble and excellent service for ordinary people like us who have no clue with these tax matters. I wish you and every one at "www.socialfinance.in" great success in all your efforts and endeavours. Thank you very much once again. Warm regards and best wishes, P. Ram Kumar
(Mar 27 '12 at 20:17) Ram Kumar

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Asked: Mar 27 '12 at 15:45

Seen: 1,876 times

Last updated: Mar 27 '12 at 20:17