Computation of capital gains in case of Joint Development Agreements (JDA)
Introduction
Capital gains arising from transfer of capital asset, being land or building or both, under a Joint development agreement shall be chargeable to tax as income of the tax year in which the certificate of completion of the project is issued by the competent authority.
1. About Joint Development Agreement (JDA)
Joint Development Agreement (JDA) means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building, in consideration of a share in such project, whether with or without payment of part of the consideration in cash or by a cheque or draft or by any other mode.
2. Scope of provision [Section 67(14)]
If an assessee, being individual or HUF, enters into a Joint development agreement with a builder or joint developer, capital gain arising from transfer of capital asset, being land or building or both, under such agreement shall be chargeable to tax as income of the tax year in which the certificate of completion for the whole or part of the project is issued by the competent authority.
3. How to calculate capital gains?
The capital gains shall be computed in following manner:
| Particulars | Amount |
Full value of consideration (Higher of actual consideration and stamp duty value plus monetary consideration) Less: (a) Cost of acquisition (b) Cost of improvement (c) Expenditure in connection with transfer Less: Exemption under Section 82 to 88 |
xxx (xxx) (xxx) (xxx) (xxx) |
| Short-term capital gains or Long-term capital gains | xxx |
4. Factors for calculation of capital gains
Any profits or gains arising from such transfer of the land or building covered under the joint development agreement shall be chargeable to tax under the head capital gains in the tax year in which the certificate of completion for the whole or part of the project is issued by the competent authority. For computation of capital gains in such case, the following factors are considered:
(a) Period of holding;
(b) Full value of consideration;
(c) Cost of acquisition;
(d) Cost of improvement;
(e) Expenditure incurred in connection with transfer;
(f) Exemptions allowed under Section 82 to 88.
It should be noted that indexation was also a key factor for computing long-term capital gain from the transfer of land or building or both under JDA. However, the Finance (No. 2) Act, 2024 removed the indexation benefit and introduced a uniform tax rate of 12.5% on long-term capital gains under Income-tax Act, 1961. This change was made to simplify capital gains computation for both taxpayers and the tax authorities.
However, to ease the transition to these new rules, the Government introduced a grandfathering provision. This provision allows resident individuals and resident HUFs to still apply indexation on land or building acquired before 23-07-2024 and pay tax at the old rate of 20% if the tax under the new law (i.e., tax calculated at 12.5% without indexation benefit) results in a higher amount.
This simplified framework has also been continued under Income-tax Act, 2025.
4.1. Computation of period of holding
The period of holding should be counted from the date of purchase or acquisition of land or building or both till the date of transfer thereof under JDA. It should be noted that while the capital gain from such a transfer is taxable in the year of project completion, the holding period is still counted up to the date of transfer. The definition of transfer under Section 2(109) is crucial in determining the exact date of transfer.
4.2. Computation of full value of consideration
The stamp duty value of the land or building in respect of the owner's share in developed project on the date of issuing of certificate of completion by the competent authority as increased by any monetary consideration received (whether in cash, cheque or any other mode) shall be deemed to be the full value of the consideration received or accruing to the owner as a result of the transfer of the capital asset.
4.3. Computation of cost of acquisition
The cost of acquisition of the land or building covered by the Joint Development Agreement shall be computed as per general provisions.
The cost of acquisition of share in the developed project, being land or building, in the hands of the land-owner shall be the amount which is deemed as full value of consideration for the purpose of computing capital gains under this provision.
4.4. Computation of cost of improvement
The cost of improvement of the land or building covered by the Joint Development Agreement shall be computed as per general provisions.
4.5. Indexed cost of acquisition or improvement
The indexation benefit is no longer available for computing long-term capital gains on capital assets. However, the Government has introduced a grandfathering provision. This provision allows resident individuals and resident HUFs to still apply indexation on land or building acquired before 23-07-2024, but only if the tax calculated without indexation results in a higher amount.
Thus, where the grandfathering provision applies, the "Indexed Cost of Acquisition" and the "Indexed Cost of Improvement" are used to compute the capital gain instead of the original cost of acquisition and improvement.
4.6. Computation of exemptions
Certain exemptions can be claimed from the capital gains arising from transfer of an immovable property under Sections 82 to 88. These exemptions have been enumerated in the below table:
| Section | Eligible Assessee | Nature of Capital Asset | Nature of original asset | Nature of new asset | Time-limit allowed for investment | Capital gain account scheme applicability | Amount of exemption |
| Section 82 | Individual and HUF | Long-term Capital Asset | Residential House Property | Residential House Property | To Buy: 1 Year before and 2 Years after the date of transfer To Construct: 3 Years after the date of transfer |
Applicable | Lower of the following: - Rs. 10 crores - Aggregate of amount invested in new house property and deposited in capital gain account scheme - Amo - - - |
| Section 83 | Individual and HUF | Short-term or Long-term | Agriculture land | Agriculture land | 2 years after the date of transfer | Applicable | Aggregate of amount invested in new agricultural land and deposited in capital gain account scheme |
| Section 84 | Any Assessee | Short-term or Long-term | Land or Building forming part of Industrial Undertaking transferred by way of compulsory acquisition |
Land or Building to shift, re-establish or set up a new Industrial Undertaking | To Buy or construct: 3 Years after the date of compulsory acquisition | Applicable | Aggregate of amount invested in new land or building and deposited in capital gain account scheme |
| Section 85 | Any Assessee | Long-term Capital Asset | Immovable Property | Bonds of NHAI or REC or other notified bonds | 6 months after the date of transfer | Not Applicable | Lower of the following: - Rs. 50,00,000 - Amount invested in specified bonds |
| Section 86 | Individual and HUF | Long-term Capital Asset | Any capital asset other than residential house property | Residential House Property | To Buy: 1 Year before and 2 Years after the date of transfer To Construct: 3 Years after the date of transfer |
Applicable | Exemption is computed as per following formula: Eligible Investment * Long-term capital gain/Net sale consideration Note: The amount of eligible investment cannot exceed Rs. 10 crores. |
| Section 87 | Any Assessee | Short-term or Long-term | Specified Assets of Industrial Undertaking in urban area | Assets of Industrial Undertaking in non-urban area | 1 Year before and 3 Years after the date of transfer | Applicable | Aggregate of amount invested in new asset or transfer of establishment and deposited in capital gain account scheme |
| Section 88 | Any Assessee | Short-term or Long-term | Specified Assets of Industrial Undertaking in urban area | Specified Assets of Industrial Undertaking in SEZ | 1 Year before and 3 Years after the date of transfer | Applicable | Aggregate of amount invested in new asset or transfer of establishment and deposited in capital gain account scheme |
4.7. Year in which taxable
Liability to pay tax on the capital gains shall arise in the tax year in which certificate of completion for the whole or part of the project is issued by the competent authority.
However, if owner of land or building transfers his share in the project to any other person on or before the date of issue of certificate of completion, the capital gains shall be computed as per general provisions of the Act without taking into account the above special provisions and it shall deemed to be the income of the tax year in which such transfer takes place.
4.8. Deduction of tax
Any person responsible for paying any sum to an Individual or HUF by way of consideration under a Joint Development Agreement shall deduct tax therefrom under Section 393 [Table S. No. 3(ii)].
(Also see Computation of capital gains in case of immovable property)
References
Resident individuals and HUFs may opt for the benefit of indexation while computing long-term capital gains arising from the transfer of land or building acquired before 23-07-2024, where the tax without indexation exceeds the tax computed with indexation.
Resident individuals and HUFs may opt for the benefit of indexation while computing long-term capital gains arising from the transfer of land or building acquired before 23-07-2024, where the tax without indexation exceeds the tax computed with indexation.
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.