Section 45(5A) read along with section 194 IC of the Income Tax Act, 1961

Meaning of joint development agreement- It is a registered agreement in which a land owner (i.e., a person who owns land or building or both) agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share (being land or building or both) in such project, whether with or without payment of part of the consideration in cash. 

Section – 45(5A)

Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of ‘transfer’includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred. In such a scenario, execution of Joint Development Agreement between the owner of immovable property and the developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project.

With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, a new sub-section (5A) in section 45 has been inserted so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

It is further provided that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

It is also provided that the benefit of this regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. Further, in such a situation, the capital gains as determined under general provisions of the act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed as per provisions of the Act without taking into account these provisions.

Section – 194 IC

A new section 194-IC has been inserted in the act w.e.f. 01-04-2017 so as to provide that in case any monetary consideration is payable under the specified agreement, tax at the rate of ten per cent shall be deductible from such payment.

• Who is responsible for tax deduction: Any person responsible for paying to a resident any sum by way of consideration (not being consideration in kind) under a joint development agreement, is responsible for tax deduction under section 194-IC.

• Time of tax deduction- Tax is deductible at the time of credit of such sum to the account payee or at the time of payment thereof in cash or by issue a cheque/draft or any other mode, whichever is earlier.

• Rate of deduction- Tax is deductible at the rate of 10 per cent. If PAN of recipient is not available, tax is deductible at the rate of 20 percent.

• Threshold limit – NIL

Extract of section 194-IC of Income Tax Act, 1961 is given below for reference: 

Payment under Specified Agreement

Notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon.

Regards Legalmantra Team