JOINT DEVELOPMENT AGREEMENT

A Joint Development Agreement (JDA) is a popular arrangement between land-owners and builders. Under JDA, a land owner enters into an arrangement with a builder to swap his land for developed piece of land and/or buildings. The owner offers his land to the builder and in return the builder undertakes to redevelop the property at his own expense like: marketing the property, obtaining legal approvals, registering the property in the name of the buyer, etc. Once the building comes up, the developer allots a specified number of units/flats to the landowner as per the mutually agreed share or the landowner may receive a percentage share of consideration received from sale of the units or some lumpsum consideration.

To tackle the complications arising in of taxation of a number of such agreement section 45(5A) was inserted in the Income Tax Act, 1961 with effect from Assessment year 2018-19 for computation of Capital Gains in case of Joint Development Agreements. However, the section enacted provides benefit only to Individuals and HUFs offering their land for development. Let’s, first dive into the computation part of the capital gain-

*Capital Gains arising on account of such JDA shall be taxed in the hands of land owner in the year in which completion certificate for the whole or part of the project is issued by the competent authority.

**If the asset is acquired before April 1, 2001, the cost of acquisition shall be the actual cost or Fair Market Value (FMV) as on April 1, 2001, whichever is higher. Also it is to be understood that the benefit of indexation shall only be available till the date from the date of purchase of 2001-2002 which ever is later to the date of execution of Joint Development Agreement.

Lets understand with the help of an Illustration-

MX purchased a residential plot on 01.01.1998 for Rs. 50,00,000. FMV of plot as on 01.04.2001 is Rs. 65,00,000. Alpha builder enters into a Development Agreement with Mr. X on 01.05.2019 on the following terms and conditions:

(a) Mr. X will hand over the possession of plot to Alpha Builders on 01.05.2019.

(b) Alpha builders will pay a cheque of 6000000 to Mr. X on 01.05.2019.

(c) Alpha builders will construct 10 residential units on the plot of land and will give 6 units to Mr. X. The 10 Units shall be completed by 30.06.2021 and on that date 6 units will be handed over to Mr. X.

(d) The stamp duty value of plot as on 01.05.2019 in 2 crores (will be Ignored).

(e) The stamp duty value of each flat on 30.06.2021 is 45 Lakhs

The project completion certificate is issued by competent authority on 30.06.2021. 6 units are handed over to Mr. X on 30.06.2021.

Analysis:

• There is a "Transfer on 01.05.2019 in hands of Mr. X since he has given the possession of residential plot pursuant to Development Agreement.

• However as per section 45(5A) introduced by Finance Act, 2017, the capital gains shall not be taxable in Previous Year 31.03.2020 but shall be taxable in the Previous Year in which certificate of completion is issued by competent Authority.

• Section 45(5A) is applicable since assessee is an individual

• The holding period of residential plot shall be taken from 01.01.1998 to 30.04.2019 i.e. long term.

• As per section 55, the COA of plot is Rs. 50,00,000 or FMV as on 01.04.2001, whichever is higher. Therefore, COA of plot is 65,00,000.

• The sale consideration of plot shall be worked out as under as per section 45(5A):

Sale consideration = SDV on the date of issue of completion certificate of his share in land/ building in project plus consideration received in cash.

• Capital Gains shall be worked out as under:

In Previous Year 31.03.2022, when completion certificate is issued by Competent Authority, capital gains shall be worked out as under:

Assessment Year 2022-23