Income Tax Department Targets Tax Evasion in Joint Development Agreements

NEW DELHI: The Income Tax Department is gearing up to launch a drive aimed at individuals who entered into joint development agreements but did not pay the required capital gains tax. In cities like Kolkata and Bengaluru alone, around 25,000 to 30,000 such entities have been identified, according to sources.

Joint development agreements are a common practice in the real estate sector, where developers and landowners enter into deals to develop properties. These agreements can range from small pieces of land with a few floors to larger tracts with multiple houses or plots. Under these agreements, landowners are required to pay capital gains tax on the transfer of property.

The campaign is expected to be launched in the coming days, with the tax department sending emails and correspondence to identified taxpayers, urging them to come forward and rectify any tax evasion voluntarily. Government sources have indicated that the majority of individuals who have missed paying taxes are likely to come forward and clear their dues.

Taxpayers whose transactions pertain to the last financial year can update their latest income tax return and pay the required tax. For cases involving previous years, an additional 25% may be required, but compliance will ensure there are no penalties. The tax department has adopted a 'Nudge' approach, using data to guide and enable taxpayers to pay their dues without facing penalties. This non-intrusive method has seen significant success in the past.

For instance, a campaign on foreign assets and income for FY 2023-24, which nudged 19,500 individuals, resulted in 12,700 revised returns, with nearly 900 individuals changing their residency status from residents to non-residents. More than 30,000 individuals reported overseas assets and income, disclosing Rs 29,000 crore in assets and over Rs 1,000 crore in additional taxes. Similar focused campaigns have been conducted for virtual digital assets and HRA exemptions, encouraging compliance without taking punitive action.

The Income Tax Department's efforts to combat tax evasion through joint development agreements are part of a broader strategy to ensure fair and transparent tax practices in the real estate sector. By encouraging voluntary compliance, the department aims to reduce the burden on taxpayers and improve overall tax collection.