My wife and son had a house in their names in Faridabad. A builder offered to develop this property into ground + 2 floor accommodation. According to the agreement, the ground and second floor flats were to be handed over to my wife and son while the first floor would be sold to some third party by the developer to recover his construction cost plus profits. Now, he has already handed over two flats to our family and sold the first floor to some third party at an undisclosed amount. However, the builder convinced us to sign the registry documents directly in favour of the buyer of this flat quoting it be the normal practice in such cases. These transfer documents were signed by my wife, son and the buyer in court. The builder has signed as witness.

Now, while going through his 26AS statement, my son found that a sum of ₹67,000 was deposited in his account. When asked, the builder said it was in line with the existing rules. But all payments were received by him in his name through cheques.

Is this practice right? What are the tax implications for my wife and son?

RK Kaur

Generally, under a joint development agreement, the owner transfers undivided share in the land to the developer/buyers and has to pay capital gains on such transfer either at the time of entering into the agreement or at the time of transfer of undivided share in land to the buyers of the flat, depending on the terms of the joint development agreement.

 Based on the facts, it appears that the sale of flat is being considered as transfer of undivided share by the owners. Further, the treatment of consideration for construction is not clear.

 In the absence of complete information, we are unable to comment fully on the tax implications. However, considering that there is transfer of undivided share of land, tax may be payable on the gains from such transfer. For determining the gain, the sale consideration would be the value adopted for payment of stamp duty (as defined in Section 50C of the Income Tax Act, 1961) or the value specified in the agreement, whichever is higher. Given the complexity of the transaction, it may be advisable to reach out to a tax consultant.

I am a foreign citizen of Indian origin residing in India. I am not a tax payee. I want to sell one residential plot which I acquired before becoming a foreign citizen. Is capital gains tax payable on this sale? Are the sale proceeds fully repatriable?  

Ramesh

 You will be liable to capital gains tax at the time of sale of the residential plot since the asset is situated in India. The profit from the sale shall be subject to tax at normal slab rates if you have held the plot for less than three years and at 20 per cent (with indexation benefit) in other instances.

 Up to $1 million a year can be repatriated if the property was acquired in rupees. In other instances, the authorised dealer may allow repatriation if he is satisfied with the conditions relating to purchase.  

The writer is Partner, Deloitte, Haskins and Sells LLP. Send your queries to taxtalk@thehindu.co.in

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