Joint Development Agreement is a popular arrangement between the land-owners and builders. In this article, you will learn about the taxability of such a transaction which is slightly different from the usual capital gains transaction.

JDA is a type of agreement between a land owner and a builder. The land owner gives his land to the builder without transferring the ownership. The builder will build apartments or flats on that land and takes care of everything like marketing the property, getting legal permission, and registering the flats in the buyer's name.
Once the flats are built, the land owner will get a certain number of flats as agreed upon or a share of the money earned by selling the flats.  This is merely like a barter arrangement. 
This arrangement is good for both the land owner and the builder because the land owner doesn't have to spend any money on construction, and the builder doesn't have to spend money on buying land, which can be used for construction instead. This helps in value creation for both parties.

Taxability Of Income Arising From JDAs In India 

1. Taxability in the hands of owner of the property 

Capital Gains taxation consists of 3 aspects i.e. full value of consideration, cost of acquisition and the year for determination of taxability

1. Full Value of Consideration(FVC) 

FVC = Stamp duty value of the property you received as on the date of issue of Completion Certificate + Cash received, if any.

2. Cost of Acquisition

Cost of acquisition = Purchase Price of the land. If the land is held for more than 2 years, the cost must be indexed up to the year in which land is transferred to the developer (this is done to account for the inflation over the years) 

3. Year of transfer

Year of transfer is the year in which land is transferred under JDA. 

4. Year of taxability i.e. the year in which owner has to pay tax

The gains you make by receiving flats in exchange of land is known as capital gains. As per the provisions of Section 45(5A), you will have to pay tax on these capital gains in the year in which the certificate of completion is issued for the whole or part of the property. This means you will have to pay tax in the year in which the building project is completed.  

However, if  assessee transfers his share in such project before completion certificate is issued then he will have to pay taxes in the year in which such transfer took place. 

Computation of Capital Gains tax under Section 45(5A):  

*If the asset is acquired before April 1, 2001, the cost of acquisition shall be the actual cost or FMV as on April 1, 2001, whichever is higher.

Eligibility for exemption under Section 54 to 54F
Where the owner buys a part of property after the redevelopment of such property and makes a payment for the same, he can claim exemption under Section 54 to 54F depending on the nature of such property.

Click here to read more about the exemptions available.

Section 45(5A) Of The Income Tax Act: Example

Mr. A purchased a plot of land on December 11, 1997 for Rs. 5,00,000. The fair market value as on April 1, 2001 is Rs. 10,00,000. 

On August 19, 2018, he entered into a JDA with Z Builders subject to following terms and conditions

• Mr. A is to receive 2 flats in the developed project along with a cheque of Rs. 40,00,000. 
• Mr. A will hand over the possession of the plot to Z Builders on August 19, 2018. Stamp duty value of each flat on that day is Rs. 30,00,000

The certificate of completion for the said project was issued on January 5, 2023 and on that date, the stamp duty value of each flat is Rs. 50,00,000. The builder transferred the flats to the landowners on March 10, 2021.

Above example can be illustrated by following timeline: 

Computation Of Capital Gain 

Key points to note 

• Section 45(5A) applies where the JDA is registered
• The property should be held as capital assets in the books of the owner and not as stock-in-trade of business
• The owner shall be an individual or HUF
• The property should not be transferred by the owner before the completion certificate is received
• This benefit cannot be availed in case the entire sale consideration is received as cash/in monetary terms instead of share in such property

Taxability of Capital Gains when Land Owner Transfers the Flats in a JDA: At a Glance

2. Taxability in the Hands Of Developer Of the Property 

For the builder/developer, such property built by them will be considered as stock-in-trade. Therefore, the nature of income from the sale of such property shall be ‘Income from business and profession’. 

The income will include proceeds from sale of such property and he shall be allowed to deduct the business expenses incurred on development of such property. The balance will be taxable. 

Section 194-IC - TDS on Payment Made Under Joint Development Agreement 

Under JDA, where the real estate developer pays any monetary consideration in form of cash or any other mode in addition to the share in the project, then the developer shall be liable to deduct TDS @10% on such payment. However, if the PAN of the owner is not available, then, such TDS shall be done @20%. 

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Capital Gains Tax

Long-term capital gains

Short-term capital gain

Tax on Long-term Capital Gains on Equity Funds

Short Term Capital Gain on Shares

Capital Gains Exemption

Section 54F