Joint Development Agreement “JDA” is an arrangement in which land owner introduce land and developer agrees to develop land for agreed consideration in cash or kind or both.

CURRENT SCENARIO

Prior to Finance Bill 2017 in case of JDA arrangement capital gains is chargeable to tax in the year in which transfer¹ takes place. H’ble Courts have ruled that granting possession vide execution of agreement is part performance of contract which confers developer with the right over the property & therefore tantamount to transfer u/s 2(47) of Act.

As a result in JDA arrangement generally capital gains tax gets triggered for the owner in the year in which possession is handed over to the developer. And deposit money received on entering into JDA agreement or cost of construction incurred by developer or FMV is considered as full value of consideration in hands of property owner.

Various submissions from property owners that it is causing hard ship for prepayment of tax even before receipt of consideration was with due respect not accepted even by H’ble Courts on technical grounds.

PROPOSED AMENDMENT

In given scenario of Real Estate industries and slowdown of JDA projects the proposed amendment which is effective from A.Y 2018-19 is a welcome step providing relief to owners of property being individual or HUF, who enters into JDA agreements² being specified agreement, wherein capital gains shall be chargeable to income tax as income of the year in which certificate of completion for whole or part of the project (hereinafter referred as “new project”) is issued by competent authority³.

Also stamp duty value⁴ relating to owners share in land or building or both of the projects as on date of issuing of said certificate of completion plus any cash consideration received by property owner shall be considered to be Full Value of consideration for computing of capital gain. 

In order to discourage practice of claiming benefit by owners who are exiting from in-complete project, proposal does not allow deferment of tax payment until completion of project wherein such owners shall be liable to payment tax on date of exiting from the project. 

The Budget also proposes to amend cost of acquisition provision and cover owner’s share in the stamp duty value of new project as cost in the hands of property owner and shall be allowed as deduction upon ultimate sale of his share in new project. 

A new section 194IC has been proposed- deduction of TDS@10% by developer on any monetary consideration paid/payable from AY 2017-2018. 

CERTAIN UNADDRESSED MATTERS

1. Applicability – Reasons for restricting benefit of deferment of tax payment only to individuals and HUF is not addressed in the memorandum and hence currently other taxpayers shall continue to bear the hardship of pre-payment of taxes.

2. Investment link exemption – New provision defers tax payment until receipt of completion certificate. However, time limit for claiming benefit u/s 54 & 54F continues to reckon from date of transfer and has not been extended until the date of issuance of completion certificate. An Amendment to give extension for exemption sought to be considered. 

3. Transfer before receipt of CC – In case of part transfer in share of new project, whether benefit of deferment in tax liability in respect of continued share in the new project will continue needs to be addressed/clarified. In case of non-applicability of deferment clause for continued share in new project, the tax payers shall continue to suffer hardship of prepayment of taxes on the continued share in the new project. 

4. Indexation benefit – Since Explanation to Sec. 48, provides benefit of indexation of cost/improvement till the year in which asset is transferred whether extension of indexation benefit until the receipt of completion certificate (being the date when consideration is determine) is available or not should also be clarified in order to avoid ambiguity.

5. Reference to Valuation officer – Currently u/s 50C, taxpayer can challenge before officer if Stamp duty value of property exceeds FMV on date of transfer, then AO have recourse to refer to Valuation Officer which unfortunately is not addressed under new sec 45(5A).

CONCLUSION

In current scenario where various stakeholders connected to Real Estate Industry really requires boosting from Government in various Corners, it is a most awaited and welcome step to encourage property owner to enter into JDA agreements. Although there are certain unaddressed concerns which hopefully should be addressed by Government, the H’ble Finance Ministry has considered various representations while proposing aforesaid amendment which will help in putting a curtain on long uncertainty and reduce the litigation to large extent.

¹ The term 'transfer' inter alia includes any arrangement or transaction where rights are transferred in execution of part performance of contract even though legal title has not been transferred

² Specified Agreement - Registered agreement in which owner of land or building or both enters into agreement with another person (developer) to develop real estate project in consideration of his share in such project and cash consideration received, if any

³ Competent Authority - Authority empowered to approve building plan by or under any law for the time being in force 

⁴ Stamp Duty Value - value adopted/ assessed/ assessable by any Government authority for the purpose of payment of stamp duty in respect of such immovable property being land or building or both