Introduction

The taxation of Joint Development Agreements (JDAs) has long been a grey area in Indian real estate and income tax practice. JDAs are popular because they allow landowners to contribute land and, in return, receive a share in the developed property and/or monetary consideration. However, the tax incidence on such transactions often triggered disputes between landowners, developers, and tax authorities.

Recognizing these challenges, the Central Board of Direct Taxes (CBDT) issued a Standard Operating Procedure (SOP) on 15 September 2025. This SOP aims to standardize how tax officers identify, verify, and assess capital gains from JDAs in line with Section 45(5A) of the Income Tax Act, 1961.

The move is expected to reduce litigation, align tax incidence with cash flows, and improve compliance monitoring through digital tools.

Section 45(5A) – The Legislative Background

Earlier, capital gains in JDAs were taxed at the time of signing the agreement or handing over possession (Section 2(47)(v) read with Section 53A of the Transfer of Property Act). This created severe cash flow issues because:

• Landowners had to pay tax before actually receiving their share of the property or money.

• Valuation was uncertain since projects often stretched for years.

To address this, Section 45(5A) was introduced by the Finance Act, 2017, applicable from Assessment Year 2018–19.

Key Provisions:

1. Who is covered?

   • Only individuals and Hindu Undivided Families (HUFs) who enter into JDAs.

   • Companies, firms, and other entities are excluded.

2. When is capital gain taxed?

   • In the year when the completion certificate is issued by the competent authority (municipal corporation, RERA authority, etc.), not at the signing date.

3. How is consideration computed?

   • The stamp duty value of the share in the developed property received by the landowner plus any monetary consideration.

4. Illustration:
   Suppose Mr. A (individual) owns 2 acres of land. He enters into a JDA with XYZ Developers in 2025. As per the agreement:

   • Mr. A will get 10 flats in the completed project + ?50 lakh cash.

   • The completion certificate is issued in 2028.

   • Stamp duty value of 10 flats in 2028 = ?8 crore.

   Then, full value of consideration = ?8 crore + ?0.50 crore = ?8.50 crore.
   Capital gains are taxed in FY 2028-29, not in FY 2025-26.

The New SOP Issued by CBDT

The 2025 SOP builds upon a technology-driven model tested by the Directorate General of Income Tax (Investigation), Kolkata. It ensures uniformity and strengthens the monitoring of JDAs.

Step-by-Step SOP Process:

1. Data Mining from RERA/HIRA Portals

   • All projects registered with Real Estate Regulatory Authorities (RERA) and Housing Industry Regulation Authorities (HIRA) will be scanned.

   • JDAs are mandatorily registered, hence information is readily available.

2. Shortlisting Relevant JDAs

   • Identify projects where landowners are individuals/HUFs (eligible under Section 45(5A)).

   • Extract details of landowner-developer agreements.

3. Cross-Referencing with I-T Returns

   • Match landowner details with filings in CPC 2.0 (income tax portal).

   • Specifically check Schedule-CG (Capital Gains) for disclosure.

4. Issuing Notices

   • If capital gains are not reported, officers can issue notices under Section 131(1A) for explanation.

5. Final Verification

   • Authorities verify capital gain computation with project valuation, stamp duty records, and disclosed income.

Why This SOP Matters

For the Tax Department:

• Helps in curbing underreporting and misreporting.

• Reduces discretion of officers, bringing uniformity.

• Improves real-time detection of suspicious transactions.

For Landowners:

• Clear linkage between completion certificate and tax liability prevents premature tax burdens.

• Reduces chances of double taxation or inconsistent interpretations.

• However, compliance monitoring will be stricter, leaving no room for omission.

For Developers:

• JDAs must be properly registered with RERA/HIRA, else both landowners and developers face scrutiny.

• Developers may be asked to share data directly with the department.

Practical Examples & Case Study

Example 1: No Cash Component

Mrs. B, an individual, contributes her land under a JDA and receives only built-up area (5 shops) in return. No cash is paid.

• Completion certificate issued in FY 2027–28.

• Stamp duty value of 5 shops = ?3 crore.

• Capital Gains taxable = ?3 crore – Indexed Cost of Acquisition.

Example 2: With Cash Component

Mr. C enters into a JDA where he gets 3 flats worth ?2.5 crore + ?1 crore cash.

• Completion certificate issued in FY 2026–27.

• Full value of consideration = ?3.5 crore.

• Tax payable in FY 2026–27, even though the agreement was signed earlier.

Example 3: Non-Disclosure Detected

HUF D fails to disclose capital gains in ITR despite completion certificate issued.

• RERA data + CPC data mismatch flagged by SOP.

• Notice under Section 131(1A) issued.

• HUF must justify or face demand notice with interest and penalty.

Challenges & Compliance Tips

Despite clarity, practical challenges remain:

• Valuation disputes: Stamp duty values may be higher than market values.

• Completion delays: Tax liability is linked to completion certificate; project delays defer taxation but increase uncertainty.

• Documentation burden: Landowners must maintain agreements, cash receipts, and valuation records.

Compliance Tips for Landowners & Advisors:

1. Always ensure proper registration of JDA under RERA/HIRA.

2. Maintain cost of acquisition documents (purchase deed, indexation details).

3. Consult tax advisors to pre-calculate capital gains for planning cash flows.

4. Disclose income accurately in Schedule-CG to avoid notices.

Concluding Remarks

The CBDT’s SOP on JDAs marks a decisive shift towards data-driven tax administration. By connecting RERA databases with income tax filings, the government ensures greater transparency and fairness in capital gains taxation.

For individuals and HUFs, Section 45(5A) provides much-needed relief by deferring tax until completion. But with the SOP in place, non-disclosure is no longer an option.

At Legalmantra.net, we believe that while this reform balances revenue collection with taxpayer convenience, landowners and developers must be vigilant in record-keeping and timely compliance. Professional guidance is essential to avoid unnecessary disputes and penalties.

Expert View (Legalmantra Input):
The real test of this SOP will be in its implementation at the ground level. While the framework is sound, issues like valuation mismatches, delayed projects, and complex JDAs involving multiple owners may still create litigation. The key takeaway for taxpayers is: disclose early, disclose correctly, and maintain documentation.

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