A Joint Development Agreement is a common arrangement between landowners and builders. In this article, we will explain the tax implications of this transaction, which differ from regular capital gains.
A Joint Development Agreement (JDA) is a legal contract between a landowner and a builder or developer. In this arrangement, the landowner provides their land to the builder, without transferring ownership, for the purpose of development. The builder constructs residential or commercial properties, such as apartments or flats, on the land.
The key aspects of a JDA include:
- Landowner’s Role: The landowner retains ownership of the land while offering it for development until the project is completed.
- Builder’s Role: The builder handles all construction-related activities, including designing, building, marketing, obtaining legal approvals, and registering the properties.
- Revenue Sharing: Once the project is completed, the landowner receives either a certain number of newly constructed units (flats) or a share of the revenue from selling them, as agreed in the contract.
JDA benefits both parties. The landowner doesn’t have to invest in construction and the builder avoids the high cost of purchasing land. This allows them to use funds for development instead.
Taxability in the hands of the Landowner
When an individual or HUF transfers land, a building, or both under a Registered Joint Development Agreement, the capital gains become taxable in the year the local authorities issue a completion certificate, either full or partial, for the newly constructed project. The value of consideration will be the stamp duty value of the landowner’s share in the project along with cash consideration if any. The capital gains will then be calculated as per section 48 of the Income Tax Act.
Capital Gains Taxation considers three key aspects: determining the full value of consideration, calculating the cost of acquisition, and identifying the year of taxability:
| Particulars | Details |
| Full Value of Consideration(FVC) | Stamp duty value of the property as on the date of issue of Completion Certificate + Cash received, if any |
| Cost of Acquisition | Purchase Price of the land |
| Year of taxability | The year in which the certificate of completion is issued for the whole or part of the property. |
Eligibility for Exemption under Section 54 to 54F
Landowners who purchase a portion of the property after redevelopment and pay for it can qualify for exemptions under Sections 54 to 54F of the Income Tax Act. The exemption depends on the type of property they acquire.
Joint Development Agreement: Example
Mr. Akash purchased a plot of land on 31 October 2000 for Rs. 6,00,000. The fair market value on 1 April 2001 is Rs. 10,00,000. On 5 April 2020, he entered into a Joint Development Agreement (JDA) with Sheetal Builders and handed over the land. Under this agreement, Mr. Akash will receive 2 flats in the developed project along with a cheque for Rs. 40,00,000. The authorities issued the completion certificate for the project on 21 September 2024 when the stamp duty value of the flat was 45,00,000.
| Particulars | Calculations | Amount (INR) |
| Full Value of Consideration | (45,00,000 x 2) + 40,00,000 | 1,30,00,000 |
| Less: Indexed COA | 10,00,000 * (301/100) | 30,10,000 |
| Long-Term Capital Gains as of 21 Sep 2024 | 99,90,000 |
Taxability in the Hands Of Developer
For the builder or developer, the property they construct will qualify as stock-in-trade. Thus, the income generated from the sale of this property is “Income from Business and Profession.”
This income includes the proceeds from the sale, and the builder can deduct business expenses incurred during development. The remaining amount will be taxable.
FAQ’s
Section 45(5A) only applies to Individuals and HUF. Hence, each assesse is different and the provision of law applicable to them will be different.
This section was introduced to remove the hardship of the taxpayer. Hence part of the project should be interpreted as that part in which the assessee is to get the share.