prpri TDS on payment in Joint Development Arrangement in Real Estate TDS on payment in Joint Development Arrangement in Real Estate

Intricacies on TDS payment to Land Owner by Promoter in Joint Development under Section 194IC of Income Tax Act, 1961

Rate of TDS- 10%  | Threshold– Any Amount

Points to Ponder

♣ There should be Joint Development Agreement (JDA) registered as mentioned U/s. 45(5A). Such agreement is termed as Specified Agreement.

♣ Applicable only in case of consideration made in Cash, Cheque, draft or by any other mode.

♣ Not applicable for the value of Area Sharing given by the Promoter to the Land Owner.

♣ Not applicable for Agricultural Land.

♣ Provisions of Section 203A shall apply for Promoter for obtaining a TAN and accordingly file TDS returns. 

 Analysis of few related issues: 

1. What is the position of Non-Resident Indian –Land Owner entering into JDA?

In the case of Non-Resident Indian entering into JDA, the promoter has to deduct TDS on the payment made in cash/draft/cheque and as well as kind (value of area sharing to Land owner by promoter). The rate of TDS applicable shall be the income tax thereon at the rates in force. For eg. if transaction falls under long term capital gains then the TDS to be deducted shall be 20% plus applicable cess and surcharge.

2. What if the consideration is in both forms ie. revenue sharing & area sharing?

If the consideration is in the form of Area sharing then no TDS is required to be deducted by the Promoter and however if the consideration is partly area sharing and partly revenue sharing then the TDS shall be applicable only on the revenue sharing part, that is on payment made in cash only. 

3. What if the JDA entered between the Land Owner & Promoter is not registered?

If the JDA entered between the Land Owner & Promoter is not registered as per the requirement under Registration Act 1908, then the provisions of Section 45(5A) shall not apply to such transactions and hence the provisions of Section 194IC is not applicable.

The provisions of section 194IA is applicable if JDA transaction meets the ingredients of Section 53A of Transfer of Property Act 1882. In such circumstances TDS @1% is applicable on the aggregate value of consideration received both in the form of cash/draft/cheque and kind (value of area shared by the promoter to land owner).

Once “transfer” triggered under 45(1) instead of 45(5A) then the land owner is bound to discharge his capital gains tax in the year of transfer and not in the year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

Note:

  • Specified Agreement means:registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash;

Point of caution to consider in JDA:

Promoter’s Obligations in compliance with TDS provisions and the Land Owner’s position with respect to deemed value of consideration for computation of capital gains & the year of discharging the capital gains tax drastically changes with changing positions by the parties in JDA(specified agreement).

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K.Balamurugan B.Sc.,LLB.,FCA | Chartered Accountant | kbalaca@gmail.com

Disclaimer : The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although requisite caution has been taken to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Author Bio

Qualification: CA in Practice
Company: D.Subramanyam Associates
Location: chennai, Tamil Nadu, IN
Member Since: 07 Dec 2020 | Total Posts: 2

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