Tax Implications in case of Joint Development Agreement (JDA)

Tax Implications in case of Joint Development Agreement (JDA)

Querist:

XYZ Developers, a registered partnership firm, doing real Estate Development has an address in Thane (W) – 400601.

Facts -

1. The Querist is the owner of a big land parcel in Thane. The land is the business asset of the entity held as stock in trade.

2. The Querist would like to enter into a joint development agreement with a Developer to develop the said land.

3. Consideration

The consideration for the said agreement will be part in cash as revenue share (at the full completion of the project) and x % percentage of constructed area.

Refundable Security Deposit

At the time of entering the agreement, Rs. 100 Refundable security deposit will be received in 2 tranches (of 80 and 20) in the same financial year.

The same will be refunded if all the conditions are complied with or vice versa in case of noncompliance it can be adjusted.

Also, the revenue share can also be adjusted against the refundable security deposit and any amount payable, or receivable will be adjusted.

Phases of Construction

The construction will be completed in 3 parts and respective area share will be received in 3 parts as and when part OC is received.

Query

1. What are the income tax implications for the Querist –

When income tax will be triggered

1) At the time of the Agreement

2) At the time of respective Completion and part-wise OC

3) At the time of the actual sale of units/flats

4) Whether it would be treated as business income or capital gains as to whether transfer definition u/s 2(47) be attracted in case of business asset?

2. Is TDS provisions applicable in the case of a Joint Development Agreement?

If yes,

1)Under which section TDS would be deducted in JDA i.e., u/s 194IA or 194IC

2) At what moment TDS will be deducted (whether at agreement, Part wise OC, or at the time of realization of revenue share)

3) On which amount TDS will be deducted in respective sections i.e., 194IA and 194IC (computation mechanism)

3. In case of showing 100 Rs as a refundable deposit whether any compliances or tax implications get triggered?

4. What are the GST Implications when the landowner receives the flats i.e. when the liability to pay GST to Developer on landowner flats arises?

Asked 1 year ago in Income Tax

In short in the above query, we want to know the tax implications for the landowner (partnership firm). When the income tax will get attracted and when the TDS will be deducted by the developer, Also the facts of the case that we have mentioned above are based on the draft agreement that we have.

Please reply and solve our query in detail.

Asked 1 year ago

Most likely as a partnership firm dealing in the land as a business asset, you are covered under tax audit. Thus you should account for your revenues on accrual basis.

As you are holding the asset as a stock in trade, the revenues are to be assessed under the head Profits and Gains of Business and not under the head Capital Gains.

You get contractucal rights to receive revenues, in cash as well as in kind, upon signing the JDA. Hence, you need to offer incomes as and when accrued as per your JDA.

A detailed assessment of your tax liabilities as a business income can be made only upon the review of the JDA and your business for the purpose of tax planning.

B Vijaya Kumar

CA, Hyderabad

1018 Answers

124 Consultations

Talk to B Vijaya Kumar

As the land is held as stock-in-trade, it would constitute a business asset resulting into business income. Transfer in the case of business asset is not covered u/s 2(47) of the Income tax Act. Transfer of business asset would be covered by transfer of ownership of asset as per general law/Transfer of property Act 1882. Transfer of asset in such a case may be recognized at the time of execution of sale deed.

1. At the time of transfer of ownership

2) TDS u/s 194-IC would be applicable on payment of consideration other than in kind

3) Tax would be payable at the time of transfer of ownership

4) Developer is liable to pay on RCM basis on supply of TDR attributable to un-booked units on the date of issuance of completion certificate of the project or first occupation whichever is earlier

For detailed discussion you may opt for phone consultation

Vivek Kumar Arora

CA, Delhi

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1105 Consultations

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