What is a Joint Development Agreement
A Joint Development Agreement is 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.
There were various ambiguities before April 2017 relating to the taxation of transactions between land owners and builders who entered into Joint Development Agreements for the transfer of flats in exchange for land. A few of the common questions were:
1 When will the transfer tax arise? At the time of entering JDA or at the time of transfer of the flat?
2. What will be the consideration on which tax will be required to pay?
3. Whether mere entering/signing of a JDA would trigger the taxable event and lead to taxability in the hands of the owner
W.E.F from April,2023, new section 45(5A) was introduced to provide clarity on taxation in case of JDA for Individual and HUF
Taxation in case of Joint Development Agreement (JDA)
In the hands of the Land Owner, transfer of capital asset i.e land will be taxable as Capital Gain. For purpose of calculating Capital Gain , cost of acquisition will be higher of:
Purchase Price of land or building
Fair Market Value as on 01.04.2001 if land / building which is transferred is purchased before 01.04.2001
Further cost of acquisition will be indexed as per Cost Inflation Index.
Timing of Taxability of Joint Development Agreements (JDA)
If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, the capital asset will be deemed to be transferred during the year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
Calculation of Consideration for Joint Development Agreements (JDA)
In JDA, consideratoin can be monetory as well as non-monetory from developer / builder of the project. Non Monetory considerations are majorly the flats in the project alloted to the land owner. Thus total sale consideration for the purpose of calculating capital gain will be sum of below two :
Monetory Consideration received by Land Owner
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
Thus Money Value received by owner and stamp duty value of flats (for instance) received by the owner on date of completion certificate will be sale consideration for calculating the Capital Gain on transfer of land.
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.
Exception to Section 45 (5A)
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.
TDS on Payment of Consideration for Joint Development Agreement (JDA)[Section 194-IC]
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.
The tax shall be deducted on money value paid to owner and stamp duty value of flats (for instance) transferred to the owner on date of completion certificate
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.
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