Joint Development Agreements: Why the Taxman Waits Till Your Flats Are Ready
[Query 1]
I will be most grateful to you if you publish your expert opinion on the typical issue involved in transfer of property under Joint Development Agreement (JDA) and its calculation of capital gain for the Assessment Year 2024-25. I hope I will personally be benefited and will certainly be benefited to most of the laymen. The details are as under
1. A father owned an independent plot which he received from his father on 31 October 1967. The gift deed dated 31 October 1967 was registered in the sub registrar office in 1991 & 2001. Total plot & construction area is around 733.91 & 234.39 sq.mtr. The family consisted of his wife & 3 daughters (D1, D2 & D3).
2. On 20 March 2020 father, by way of registered gift deed, transferred 1/3rdshare in above property to his wife & 1/3rd to his daughter (D2).
3. With 1/3rdshare each, father, wife and daughter (D2) jointly decided to develop the aforesaid property into a residential estate by constructing a multistoried building and accordingly by an agreement of Joint Development Agreement (JDA) registered with the registrar office on 29.09.2020 which was further rectified on 04.03.2021 by way of correction deed.
4. On 25.03.2021 father breathed his last. Consequent upon his death, his undivided 1/3 share and interest in the said plot devolved equally upon his widow and three daughters namely D1, D2, D3.
5. On 26.04.2021, by registered release deed without consideration wife, D2 and D3 (who got 1/4thshare each in the 1/3rd share of the deceased) relinquished all their respective rights in respect of their inheritance in the 1/3 share in the said plot in favour of D1. As a result, wife, D2 and D1 became the Joint co-owners of the aforesaid property.
6. Financial details :
a) Developer is an individual proprietor. Total consideration as per JDA & correction deed was Rs. 4.25 Cr [Rs. 1.60 Cr. in cheque & Rs. 2.65 Cr by way of 2 flats to each co-owner (i.e., total 6 flats)].
b) Valuation of land and construction as on 2001 as per stamp duty valuation and registered valuer report is Rs. 53.14 Lakh.
c) Date of occupancy is 29 May 2024.
d) Stamp duty valuation (SDV) of the flat vis a vis construction cost as on the date of occupancy is Rs. 69,910 & Rs. 29,000 per square meter.
e) Wife, D1 & D2 got two flats each with total area aggregating to 424.28 sq.m (Flat 1 – 103.58 sq.m. & Flat 2 – 120.70 sq.m), 224.28 sq.m & 256.862 sq.m respectively.
f) Wife & D1 was not having any other house property previously in her name. D2 already has two flats as joint owners with her husband (other than these 2 flats now received under JDA) for which full purchase proceedings were paid by the husband only and loan repayment is also by the husband only. D1 has neither provided any financial assistance, either in purchase or in loan repayment. Husband of D1 is a full time Government employee as a professor in GMC, owns 50% share each in two flats with her wife even though the same is purchased by husband only.
7. With above background, your expert opinion on following issues:
i. Year of Sale?
ii. Cost of inflation index up to Joint Development Agreement or date of occupancy?
iii. Instances of capital gain?
iv. As on the date of occupancy, stamp duty valuation rates as prescribed at Rs. 69,910 per sq.mtr for flats vis a vis Rs. 29,000 per sq.mtr for construction?
v. Exemption from capital gain if any available then what shall be its cost? [batru2709@gmail.com]
Opinion:
Property owners often think – ‘It’s my land, I’m just getting a builder to put up flats, where’s the sale?’ The Income-tax Department, however, smiles and says – ‘Nice try, but we’ll tax it anyway! A Joint Development Agreement (JDA) is like a marriage between landowner and builder – the landowner gives land, builder gives construction, and the taxman becomes the permanent relative who insists on taking his share. Let us simplify the situation vis a vis your issues in a stepwise manner:
1. Year of Sale / Taxability:
Section 45(5A) is a special rule for taxation of JDAs. Tax isn’t due in the year of signing the agreement but in the year when the occupancy certificate is issued – here, May 2024. So, AY 2025–26 is the year of tax. Till then, you can relax; the taxman waits patiently but never forgets. So, while you’re waiting for your dream flat, the taxman is waiting for his dream tax. Release deed without consideration(in favour of D1) is not a “transfer” under Sec. 47(i), hence no capital gain arises at that stage. Only JDA taxation applies in the case of a land owner.
2. Cost of Acquisition & Indexation:
a) Since the property came by gift acquired prior to 01.04.2001, fair Market value (FMV) as on 01.04.2001 can be taken as cost for capital gain computation.
b) Income tax law is not very clear regarding the year up to which indexation benefit would be available i.e., up to FY 2020-21 or FY 2024-25.
Though, neither section 45(5A) nor CBDT has not clarified it explicitly, the logical interpretation conveys that it should be up to FY 2024-25.
3. Consideration Value – What should be taken?
This is the trickiest part. The law says thefull value of consideration shall be the Stamp Duty Value (SDV) of the share in the project on the date of issue of the occupancy certificate plus any monetary consideration received.
So, in this case:
a) Cheque component: ₹60 crore, plus
b) Value of flats received: Between ₹29,000 and ₹69,910, guess which figure the taxman loves? Yes, the fatter one. He never misses the buffet table. So, ₹69,910 per sq.mtr has to be adopted, not the construction cost of ₹29,000 per sq.mtr.
Reason: Section 45(5A) specifically links consideration to “stamp duty value on the date of completion certificate.
4. Instances of Capital Gain:
Each co-owners (wife, D1 & D2) has to compute capital gains in proportion to their share.
a) Sale consideration = Monetary part + SDV of flats allotted.
b) Less: Cost of acquisition or Indexed cost of acquisition, as the case may be considering whether 20% or 12.50% of tax rate options.
c)The balance is taxable as Long-Term Capital Gain (LTCG).
5. Exemptions Available:
a) Since flats are received against a transfer of your residential house, Section 54 exemption applies (not Sec. 54F). So, D2 can also claim relief despite owning flats earlier. Section 54 is like a forgiving parent – it still lets you save tax even if you already have a house or two! Ignore the flat you already own. But Wait, even parents get strict when you ask for a second toy house. So, two flats? Only if your gain is not too fat!
You are getting two flats from the builder and not one. Sec 54 allows capital gain exemption only if you invest in “one” house. After Finance Act, 2019, exemption for two houses is allowed only if gains ≤ ₹2 crore. In your case, in my considered opinion, exemption would still be available as it is in the same building. [May refer – https://thetaxtalk.com/2025/06/capital-gain-exemption-under-section-54f-income-tax-act-speaks-of-one-residential-house-not-one-residential-unit/.]
6. Practical Takeaway:
– Sale = FY 2024–25.
– Consideration = Cash + SDV of flats.
– Indexation up to FY 2024–25.
– Sec. 54 exemption possible, even if you already own other houses
Conclusion:
In a JDA, you get flats, the builder gets profit, and the Income-tax Department gets happiness. Everyone walks away with something. However, taxpayers have to be cautious and careful while drafting the JDA to ensure that it doesn’t attract any other collateral tax implications & liabilities.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
