CBDT Notifies Best Practices SOP for Assessing Capital Gains on JDAs u/s 45(5A)

The Central Board of Direct Taxes (CBDT) has recently issued an office memorandum outlining the process for identifying and checking cases to ensure compliance and collection. It explains the provisions and rules under Section 45(5A) of the Income Tax Act and Standard Operating Procedure (SOP), based on the successful methods of the Kolkata charge to find and check cases where people may not have disclosed capital gains from Joint Development Agreements (JDAs).

Earlier, landowners had to pay capital gains tax while signing the JDA, even if they had not received their payment. Now, under Section 45(5A), for the individuals and Hindu Undivided Families (HUFs) who sell their land or building under an agreement, the capital gains tax is only chargeable once the completion certificate for the project is issued by the competent authority. The full value of consideration is considered as the stamp duty value of the landowner’s share in the project on the date the certificate of completion is issued with the monetary consideration received.

The Kolkata Charge introduced an effective and strategic method to find cases under Section 45(5A). Here are the steps involved in this method:

• Using RERA/HIRA Websites: The first step is to use the websites of the Real Estate Regulatory Authority (RERA) or the Housing Industry Regulation Act (HIRA), as these websites have lots of information, such as the registered websites.
• Finding Similar Projects: under this step, certain projects under JDAs, where the landowners are individuals or HUFs, are identified.
• Cross-Verifying ITR: Authorities download the tax return’s copy from the CPC 2.0 portal if they find any potential case.
• Checking Capital Gains Disclosure: The capital gains in the ITR are matched to check whether the landowner has reported them or not.
• Summons: If the landowner has not reported capital gains, the tax authorities issue a summons for further investigation.

This method helps the authorities to find such potential cases using a clear, systematic, and data-driven framework. By using these methods, the investigation directorate does not have to depend on the information gathered from third parties. The CBDT has to use this methodology all over India to improve tax monitoring.