Clipped from: https://taxguru.in/income-tax/joint-development-agreements-tax-implications.html
A Joint Development Agreement (JDA) is a registered contract between a landowner and a developer, wherein the landowner allows the developer to develop a real estate project on the land or building. In return, the landowner receives consideration, which may be monetary or non-monetary, such as a share in the developed property. As per Section 45(5A) of the Income Tax Act, the capital asset in a JDA is considered transferred in the year when the competent authority issues the certificate of completion for the whole or part of the project. The competent authority refers to the body authorized under law to approve building plans. This provision applies specifically to individuals and Hindu Undivided Families (HUFs).
The computation of capital gains in a JDA follows the standard capital gains formula. The full value of consideration is determined by aggregating any money received by the landowner and the stamp duty value of the owner’s share in the developed project as of the date when the completion certificate is issued. From this full value of consideration, the cost of acquisition (or its indexed cost, wherever applicable), cost of improvement, expenses related to the transfer, and exemptions under Sections 54 to 54GB are deducted to arrive at the capital gain amount. Notably, indexation benefits on long-term capital assets are not available for transfers made on or after 23 July 2024, except for assets acquired before that date by resident individuals and HUFs under the grandfathering provision.
The cost of acquisition in the hands of the landowner for the developed property is the amount deemed as the full value of consideration for computing capital gains. The period of holding is counted from the date of acquisition or purchase of the property until the day before the issuance of the completion certificate by the competent authority. However, if the owner transfers their share in the project before the issue of the completion certificate, the capital gains are calculated as per the general provisions, and the income is taxed in the year the transfer occurs.
Further, under Section 194-IC, tax is required to be deducted at source (TDS) on any payment made as consideration under a JDA to a resident individual or HUF. The responsibility to deduct tax lies with the person making the payment, which can be in monetary or non-monetary form. The TDS rate is 10%, and in cases where Section 206AA or Section 206AB applies, the rate increases to 20%. However, Section 206AB will be omitted with effect from 1 April 2025.
In summary, JDAs involve complex taxation mechanisms where the timing of transfer, computation of capital gains, and deduction of tax at source are crucial. Section 45(5A) ensures that tax liability arises only upon completion of the project, while Section 194-IC provides for appropriate TDS compliance on payments made to resident individuals or HUFs engaged in such agreements.
Joint Development Agreements (JDA)
Taxability under Section 45(5A)
- Taxability of Joint Development Agreements (JDA)
If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, it shall be deemed that the capital asset is transferred during the year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
- Meaning of Joint Development Agreement
Joint Development Agreement means a registered agreement in which a person owning land or building agrees to allow another person to develop a real estate project on such land or building, in consideration of a share in such project, whether with or without payment of part of the consideration in cash or by a cheque or draft or by any other mode.
- Meaning of Competent Authority
Competent authority means the authority empowered to approve the building plan by or under any law for the time being in force.
- Calculation of Capital Gains
The capital gains shall be computed in the following manner:
| Particulars | Amount |
| Full value of consideration Less: Cost of acquisition/Indexed cost of acquisition* Cost of improvement/Indexed cost of improvement*Expenditure in connection with the transfer Less: Exemption under Section 54 to Section 54GB | Xxx(xxx) (xxx)(xxx)(xxx) |
| Short-term/Long-term capital gains | xxx |
*** Indexation benefit shall not be available in respect of the long-term capital assets transferred on or after 23-07-2024. However, a grandfathering is allowed for land or building in case of resident individual/HUF. As per the grandfathering provision, resident individuals and resident HUFs can still apply indexation on land or building acquired before 23-07-2024.
- How to calculate the full value of consideration?
In JDA, the land-owner may get monetary or non-monetary consideration from the developer for contributing his land to the project. Monetary consideration can be a share in the sale consideration of the project, and non-monetary consideration means a specified share in the developed estate.
In this case, the aggregate of money consideration received by the owner of immovable property and the stamp duty value of the property in respect of the owner’s share in the developed project on the date of issuing of the certificate of completion by the competent authority shall be deemed to be the full value of the consideration received or receivable by the owner as a result of the transfer of such immovable property.
- Meaning of Stamp Duty Value
Stamp Duty Value means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of immovable property, being land or building or both.
- Cost of Acquisition
For the computation of the capital gains from the joint development agreement, the cost of acquisition and indexed cost of acquisition of the land or building covered by the JDA shall be computed as per general provisions.
The cost of acquisition of share in the developed project in the hands of the land-owner shall be the amount which is deemed as the full value of consideration for the purpose of computing capital gains under this provision.
- Period of holding
The period of holding shall be counted from the date of purchase or acquisition till the date immediately preceding the date on which the certificate of completion is issued by the competent authority.
However, if the owner of land or building transfers his share in the project to any other person on or before the date of issue of the certificate of completion, the capital gains shall be computed as per general provisions of the Act without taking into account the above special provisions, and it shall be deemed to be the income of the previous year in which such transfer takes place.
Deduction of Tax [Section 194-IC]
- Who is a deductor?
Any person responsible for paying any sum by way of consideration under a Joint Development Agreement shall deduct tax therefrom. The tax is deducted at the time of payment or at the time of credit of the sum to the account of the deductee, whichever is earlier.
- Who is the deductee?
The tax shall be deducted if the payment is made to a resident individual or HUF.
- Rate of TDS
The tax shall be deducted at the flat rate of 10%. The tax shall be deducted at 20% if Section 206AA or Section 206AB apply.
Note: the provisions of section 206AB are omitted w.e.f. 01-04-2025.
MCQs on Joint development agreements (JDA)
Q1. If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, it shall be deemed that the capital asset is transferred during the year in which the___________ .
Ans:- (a) certificate of occupancy of the project is issued by the competent authority
(b) certificate of completion for the whole or part of the project is issued by the competent authority
(c) possession of the asset is transferred to the buyer
(d) sale deed is executed in favour of the buyer
Correct answer: (b)
Explanation: If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, it shall be deemed that the capital asset is transferred during the year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
Q2. Full Value of Consideration in Joint Development Agreement includes-
Ans:- (a) monetary consideration
(b) Non-monetary consideration
(c) Both (a) and (b)
(d) None of the above
Correct answer: (c)
Explanation: In JDA, the land-owner may get monetary or non-monetary consideration from the developer for contributing his land to the project. Monetary consideration can be a share in the sale consideration of the project, and non-monetary consideration means a specified share in the developed estate.
Q3. Full Value of Consideration in Joint Development Agreement with respect to non-monetary consideration means
Ans:- (a) Fair Market value of the owner’s share in the developed project
(b) Stamp Duty Value of the owner’s share in the developed project on the date of issue of completion certificate
(c) Stamp Duty Value of the owner’s share in the developed project on the date of possession of such share
(d) None of the above
Correct answer: (b)
Explanation: In the case of JDA, the aggregate of money consideration received by the owner of immovable property and the stamp duty value of the property in respect of the owner’s share in the developed project on the date of issuing of the certificate of completion by the competent authority shall be deemed to be the full value of the consideration received or receivable by the owner as a result of the transfer of such immovable property.
Q4. The period of holding shall be counted from the date of purchase or acquisition till the date.
Ans:- (a) immediately preceding the date on which the certificate of completion is issued
(b) of agreement in which the owner agrees to allow another person to develop a real estate project
(c) of sale of such developed real estate project
(d) None of the above
Correct answer: (a)
Explanation: The period of holding shall be counted from the date of purchase or acquisition till the date immediately preceding the date on which the certificate of completion is issued by the competent authority.
Q5. Tax under section 194-IC is deducted for paying any sum by way of consideration under a Joint Development Agreement when the deductee is
Ans:- (a) Resident Individual
(b) Resident HUF
(c) Both (a) and (b)
(d) Any assessee
Correct answer: (c)
Explanation: Any person responsible for paying any sum by way of consideration under a Joint Development Agreement shall deduct tax therefrom. The tax shall be deducted if the payment is made to a resident individual or HUF.
Q6. Tax under section 194-IC is deducted at the rate of
Ans:- (a) 5%
(b) 10%
(c) 1%
(d) 20%
Correct answer: (b)
Explanation: The tax under section 194-IC shall be deducted at the flat rate of 10%.
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