Joint Development Agreements (JDA) play a significant role in the real estate sector, where landowners collaborate with developers. This article explores the tax implications under Section 45(5A) and sheds light on the capital gains, deductions, and other vital aspects associated with JDAs.
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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 transferLess:Exemption under Section 54 to Section 54GB |
Xxx
(xxx) (xxx) (xxx) |
| Short-term/Long-term capital gains | xxx |
- 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
Important points on Joint development agreements (JDA)
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. The tax under section 194-IC shall be deducted at the flat rate of 10%.
Conclusion:
Joint Development Agreements (JDAs) are integral to the real estate sector. Understanding their tax implications is crucial for both landowners and developers. The taxability under Section 45(5A) involves the computation of capital gains, with deductions and tax deductions playing a key role in the overall financial landscape of JDAs. Landowners and developers must consider these aspects carefully to ensure compliance with tax laws and make informed decisions.
Considering amendment made in the budget 2023, whether corpus fund, rent, etc received from the builder form part of the sale consideration in the year in which the completion certificate is obtained by the developer