Is it legal to tax completely underwater land?

If a developer develops a land of some others(generally this happens in real estate business) what are the tax?

• If a developer develops a land of some others(generally this happens in real estate business) what are the tax consequences in the case of developer and the land owner? Below are my doubts in a case.... This is a case where the land of Mr X was given to a developer Mr Y in the year June 2008 under GPA for construction of flats for sale. As per the agreement the land owner is to receive 2 flats after the construction i.e., April 2009. The rest are to be with the developer for sale. In this case... Is Mr X chargeable to capital gains? then which amount is to be taken as sale consideration... his land market value or the market value of 2 flats received ? and when he is liable to pay tax? In the case of Mr Y... does there any issue of capital gains? If not then in the year 2008-09 as there is only construction and no sale, is it right to transfer his construction cost to WIP ? In the year 2009-10 he sold the rest of the flats with him.... so the entire sale value of flats including land value should be taken as business income? Kindly any one give clarity to me in this regard. Thanking you

• Answer:

  I think only Chartered accountants can clarify better. In my understanding: If the land owner X has held the land for a long time, it attracts as per long term capital gains and applicable sale proceeds of Y in respect of transfer of UDS will be X’s income in which after applicable adjustments on inflation, the remaining is reinvestment in construction. If there is any excess, that will attract tax. In case of Y First year can be shown as WIP and second year business income as regular assessment for tax.