Real Estate & JDA Taxation

Pre-2017 position (and current position for non-specified persons)

Capital gains arose in the year the JDA was entered into — i.e. the year the landowner transferred possession to the developer. This created a cash-flow problem because the landowner had no cash receipt at that stage.

Section 45(5A) — inserted by Finance Act 2017 (effective AY 2018-19)

For specified agreements (where an individual or HUF transfers land or building or both under a registered JDA), capital gains are taxed in the year in which the completion certificate for the whole or part of the project is issued by the competent authority — NOT the year of agreement.

Stamp duty value for computation

The full value of consideration for computing capital gains = stamp duty value of the landowner's share of units on the date of the completion certificate PLUS any cash/monetary consideration received under the JDA (Section 45(5A) proviso).

Transfer before completion certificate

If the landowner transfers their share of units before the completion certificate is issued, capital gains on those units are computed in the year of such transfer (not deferred to completion certificate date).

Section 54

Who: Individual or HUF selling a residential house property (long-term capital asset)

Condition: Purchase a new residential house within 1 year before or 2 years after sale, OR construct within 3 years

Limit: Exemption up to ₹10 crore (on gains) — Finance Act 2023 capped the rollover at ₹10 Cr

Only one new house; new house must not be transferred within 3 years

Section 54F

Who: Individual or HUF selling any long-term capital asset OTHER than a residential house

Condition: Invest the entire net consideration (not just gains) in a new residential house within 1 year before or 2 years after sale (or construct within 3 years)

Limit: Proportionate exemption if only part of net consideration is invested; capped at ₹10 Cr — Finance Act 2023

Seller must not own more than 1 residential house on date of transfer (excluding the new house)

Capital Gains Account Scheme (CGAS)

Who: Where the rollover investment cannot be made before ITR filing due date

Condition: Deposit unutilised amount in Capital Gains Account Scheme with a designated bank before ITR filing due date

Limit: Amount deposited is treated as invested for exemption purposes; must be utilised within the Section 54/54F time limit

Failure to utilise CGAS amount within time limit makes the gain taxable in the year of expiry

In which year are capital gains from a JDA taxed after Section 45(5A)?

For specified persons (individual or HUF) entering a registered JDA after 1 April 2017, capital gains are taxed in the Assessment Year corresponding to the previous year in which the completion certificate for the project (or part thereof) is issued by the competent authority — not the year of signing the JDA. This deferral is automatic; the taxpayer does not need to elect it. If any monetary consideration is received under the JDA before the completion certificate, that is taxed in the year of receipt (Section 45(5A) proviso).

Does GST apply when a landowner receives flats under a JDA?

Yes. The GST Council has clarified that the transfer of development rights (TDR/FSI) by the landowner to the developer is a supply of service taxable under GST. GST on TDR is payable by the developer under reverse charge mechanism (RCM) — not by the landowner directly. However, if the landowner is selling units received under the JDA to third-party buyers before the completion certificate (i.e., under-construction property sale), the landowner may become liable to register and collect GST @ 5% (without input tax credit) or 12% (with ITC, on affordable housing). We advise on the GST applicability and registration requirement for each JDA structure.

What is Section 50C and how does it affect property sale capital gains?

Under Section 50C of the Income Tax Act, 1961, if the actual sale consideration for a land or building is less than the stamp duty value (circle rate value), the stamp duty value is deemed to be the full value of consideration for computing capital gains — i.e., the seller is taxed on the circle rate value even if they received less. Where the actual consideration is within 10% of the stamp duty value, no adjustment is made under Section 50C (Finance Act 2020 amendment). We compute capital gains using the correct base — stamp duty value vs actual consideration — and advise on Section 50C exposure before the transaction.

Is land acquired by government under compulsory acquisition taxable?

Compensation received for land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) is exempt from capital gains tax under Section 96 of the RFCTLARR Act. However, enhanced compensation received on reference to the Land Acquisition Officer or in court is taxable as capital gains in the year of receipt under Section 45(5) of the Income Tax Act. We advise on the taxability of each component of compensation received on compulsory acquisition.