Taxability under JDA

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This discussion clarifies the taxability of Joint Development Agreements (JDAs) for landowners, particularly concerning refundable security deposits. Capital gains are generally calculated based on the value of the developed property received, not the deposit amount. Tax is typically levied in the year the completion certificate is issued, as per Section 45(5A), unless the property is transferred earlier. The landowner's concern about paying capital gains tax on a refundable deposit without receiving cash is addressed by clarifying that the tax is on the property's value, not the deposit itself.

Subhash Jain

Subhash Jain (Querist)
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20 June 2024 Hello,

My client of Land Owner.

Under JDA, if land owner received refundable lumpsum security deposit from land developer, which is to returned back to land developer upon possession of the constructed premises (his share), then what would be sale consideration in the hands of land owner and at what time.

For eg. land owner gets 1 crore at the time time of handing over the premises/land to land developer, and it is agreed upon that, out of 1 crore, 50 lacs to be returned back to land developer upon completion of structure and 50 Lacs to be returned back upon possession of his 60% share in the property.

So how and when capital gains is to calculated from the perspective of LAND OWNER.

Thanks in Advance.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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20 June 2024 As per the provisions of Section 45(5A), the taxability of JDA arises in the year in which the certificate of completion is issued.
However, this provision shall not apply if such property is transferred by the owner before such completion certificate is issued.

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Subhash Jain

Subhash Jain (Querist)
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20 June 2024 But sir,

There would be huge financial burden on the land owner in the form of capital gains, even if he has not received any cash nor has sold any of his share ?

He has only received the refundable deposit from the land developer.

How this has can be handled by land owner ?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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20 June 2024 Capital gain over will be calculated only on the value of developed property received, not over deposit.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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30 August 2024 Good luck.

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