Chartered Accountant

1. New simplified mechanism for individual/HUF to levy income tax on the Joint Development agreement (JDA) is recently incorporated in the Income Tax Act-1961 as a result of which capital gain tax liability arises in the year in which the development is completed. However, the new mechanism is applicable on the JDA signed on or after 01.04.2017 & the same was covered at length in the Tax Talk dated 20/03/2017.
2. Your JDA is executed in August’-2016 & so it would be governed by the old taxing provision which was well elaborated in the Tax Talk Dated 17/04/2017. In your case, if you have given broadly unconditional & absolute possession of the property to the builder for development then capital gain tax liability would trigger in the FY 2016-17. In such case, you would be required to incorporate the same in the ITR for the FY 2016-17. However, you can claim an exemption u/s 54 or U/s 54F against “one” flat you are getting back from the builder if it is within prescribed time frame.
3. Exemption u/s 54 or 54F is available only against investment in “one” house property. If you are able to substantiate that the two flats are capable of being used as “one” house property then, subject to certain probable litigation at the assessment level, you can claim an exemption. Since, you intend to sale 1 flat, you can consider of claiming an exemption only against “one house” (or two flat capable of being used as one house property). However, if both the flats that you would be getting back are not capable of being used as “one” house property then exemption cannot be claimed in respect 2 flats simultaneously. [The issue of two flats which could be considered as one flat was discussed in length in the Tax Talk dated 24/10/2016. It can be retrieved from www.ehitavada.com].
4. Tax liability and quantum of exemption would depend upon various other factors & cannot be worked out in isolation.
5. Once an exemption u/s 54 or 54F is claimed towards purchase/construction of new house property then such new house property need not be transferred within a period of 3 years. If the new assets is transferred within a period of 3 year then exemption allowed earlier would be withdrawn. However, gift (through heeba or otherwise) is not considered as “transfer” as a result of specific exclusion provided in section 47 of the Income Tax Act-1961. So, even if the huse property against which exemption is claimed u/s 54F is transferred via gift within a period of 3 years, still the exemption would not be withdrawn.  However, if you are claiming an exemption against both the new flats treating it as “one” house property & thereafter gifting the said flats to your 2 sons individually, it would mean that you never intend to use the two separate unit as “one” unit and could result in denial of your exemption claim.