Section 45(5A) Income Tax Act: Capital Gains on Joint Development Agreement (JDA) - FY 2026-27

Section 45(5A) of the Income Tax Act provides relief to landowners entering into Joint Development Agreements (JDA) by deferring capital gains tax liability. Instead of paying tax at the time of signing the agreement or handing over possession, landowners pay capital gains tax only when the completion certificate is issued by the competent authority. This provision, effective from Assessment Year 2018-19, applies to individuals and HUFs who transfer land or building under a registered development agreement. Understanding Section 45(5A) is crucial for real estate owners planning to develop their property through JDA arrangements in FY 2026-27.

What is Section 45(5A)?

Section 45(5A) was inserted in the Income Tax Act by the Finance Act, 2017 with effect from 1st April 2018 (Assessment Year 2018-19). This section addresses a genuine hardship faced by landowners who enter into Joint Development Agreements - the requirement to pay capital gains tax immediately upon transfer of possession, even when they haven't received any cash consideration.

Legislative Intent: The provision aims to minimize genuine hardship that landowners face in paying capital gains tax at the time of entering into a JDA, when they have neither received cash nor have the developed property to sell. Tax liability is now deferred to the year when the completion certificate is issued and the landowner receives their share in the developed project.

What is a Joint Development Agreement (JDA)?

A Joint Development Agreement is a contractual arrangement where:

Landowner contributes: Land or building or both
Developer contributes: Construction cost, expertise, approvals, and marketing
Consideration structure: Landowner receives a share (percentage or specific units) in the developed property, with or without cash payment
Mutual benefit: Landowner unlocks land value without investment; developer gets land without upfront capital

Specified Agreement (JDA) - Definition

As per Section 45(5A), a "specified agreement" 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 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.

Eligibility Criteria for Section 45(5A)

Section 45(5A) applies only when specific conditions are satisfied. Understanding these eligibility requirements is critical for proper tax planning.

Who Can Claim Section 45(5A) Benefits?

Condition	Requirement	Details
1. Eligible Assessee	Individual or HUF only	Companies, partnership firms, trusts, and other entities cannot claim this benefit
2. Nature of Asset	Land or building or both	Must be a capital asset (not stock-in-trade). Interest in land (TDR, leasehold rights, easements) not covered
3. Type of Agreement	Registered JDA	Agreement must be registered under Registration Act. Unregistered agreements don't qualify
4. Consideration Type	Share in developed project	With or without additional cash payment. Pure cash sale doesn't qualify
5. Transfer Requirement	Transfer under Section 2(47)	There must be a valid transfer (usually possession under Section 2(47)(v))
6. Project Status	Landowner retains share till completion	If share is sold before completion certificate, Section 45(5A) doesn't apply

Important Exclusions:

Stock-in-Trade: If land is held as stock-in-trade (business inventory), Section 45(5A) does not apply
Pure Cash Deals: If entire consideration is in cash with no share in project, this section doesn't apply
Companies/Firms: Only individuals and HUFs are eligible; corporate entities cannot claim this benefit
Unregistered Agreements: Without registration, the agreement doesn't qualify as "specified agreement"

Key Features of Section 45(5A)

Deferral of Capital Gains Tax

The most significant benefit of Section 45(5A) is tax deferral:

Event	Without Section 45(5A)	With Section 45(5A)
Signing JDA	Capital gains arise	No tax liability
Handing Over Possession	Tax payable immediately	No tax liability
During Construction	-	No tax liability
Completion Certificate Issued	-	Tax liability arises
Receiving Developed Property	-	Tax payable in this year

Year of Taxability vs Year of Transfer

Critical Distinction:

Year of Transfer: Remains the year when possession is handed over (as per Section 2(47))
Year of Taxability: Deferred to the year when completion certificate is issued
Impact: This affects holding period calculation, indexation benefit, and exemption eligibility

Calculation of Capital Gains Under Section 45(5A)

Full Value of Consideration (Sale Price)

Full Value of Consideration =
Stamp Duty Value of Landowner's Share in Project
(on date of completion certificate)
+ Cash Received (if any)

Key points about FVC calculation:

Valuation Date: Stamp duty value is taken as on the date of completion certificate, not on the date of JDA signing or possession handover
Landowner's Share: Only the units/area allocated to landowner is valued
Cash Component: Any additional monetary consideration is added to FVC
No Deduction: Construction cost borne by landowner (if any) is not deducted from FVC

Cost of Acquisition and Indexation

For calculating capital gains, the following apply:

Cost of Acquisition: Original purchase price of land/building (or FMV as on 01.04.2001 if purchased before that date)
Indexation Benefit: Available if held for more than 24 months (long-term capital asset)
Holding Period: From date of original purchase to date of transfer (possession handover), NOT till completion certificate date
Indexed Cost: Cost of Acquisition × (CII of year of completion certificate ÷ CII of year of acquisition)

Capital Gains Calculation Formula

Long-Term Capital Gains (LTCG)

LTCG = Full Value of Consideration
Less: Indexed Cost of Acquisition
Less: Indexed Cost of Improvement (if any)
Less: Exemptions u/s 54, 54EC, 54F (if applicable)

Tax Rate (FY 2026-27): 20% with indexation or 12.5% without indexation (as per latest provisions)

Practical Example - Section 45(5A) Calculation

Example 1: Basic JDA with Cash and Property Share

Background:

Mr. Sharma purchased land on 1st January 2010 for ₹50,00,000
FMV as on 1st April 2001: Not applicable (purchased after 2001)
JDA signed with ABC Builders on 1st May 2024
Possession handed over: 1st May 2024
Stamp duty value of land on 1st May 2024: ₹2,00,00,000

JDA Terms:

Builder constructs 10 residential units
Mr. Sharma receives: 6 units + ₹60,00,000 cash
Completion certificate issued: 30th June 2026
Stamp duty value of each unit on 30th June 2026: ₹50,00,000

Capital Gains Calculation (FY 2026-27, AY 2027-28):

Particulars	Calculation	Amount (₹)
Full Value of Consideration	(₹50,00,000 × 6 units) + ₹60,00,000	₹3,60,00,000
Less: Indexed Cost of Acquisition	₹50,00,000 × (363/148)*	₹1,22,63,514
Long-Term Capital Gains	₹3,60,00,000 - ₹1,22,63,514	₹2,37,36,486
Tax Payable @20% (with indexation)	₹2,37,36,486 × 20%	₹47,47,297

*CII for FY 2009-10 = 148; CII for FY 2026-27 = 363 (estimated)

Key Takeaways:

Tax liability arises in FY 2026-27 (when completion certificate issued), not in FY 2024-25 (when JDA signed)
Holding period: January 2010 to May 2024 = More than 24 months = Long-term capital asset
Stamp duty value taken as on 30th June 2026, not as on 1st May 2024
Mr. Sharma can claim exemption u/s 54, 54EC, or 54F to reduce/eliminate tax liability

Example 2: Landowner Sells Share Before Completion Certificate

Scenario:

Same facts as Example 1, but Mr. Sharma sells 2 out of 6 units on 15th March 2026 (before completion certificate)
Sale price of 2 units: ₹90,00,000
Completion certificate issued: 30th June 2026

Tax Treatment:

For 2 Units Sold Before Completion Certificate:

Section 45(5A) does NOT apply
Capital gains will be computed as per general provisions
Taxable in FY 2025-26 (year of sale)
FVC = ₹90,00,000 (actual sale price)
Cost allocation needed based on proportionate calculation

For Remaining 4 Units (Retained Till Completion):

Section 45(5A) applies
Capital gains taxable in FY 2026-27 (year of completion certificate)
FVC = Stamp duty value of 4 units on 30th June 2026 + proportionate cash

Lesson: Selling share before completion certificate results in immediate tax liability and loss of Section 45(5A) benefits for that portion.

TDS Provisions - Section 194IC

Along with Section 45(5A), the Finance Act 2017 introduced Section 194IC to mandate TDS on cash payments under JDA.

Key Features of Section 194IC

Aspect	Details
Who Deducts TDS?	Developer/Builder making cash payment to landowner
When to Deduct?	At the time of credit to account or payment (cash/cheque/any mode), whichever is earlier
TDS Rate	10% (if PAN furnished) 20% (if PAN not furnished - Section 206AA)
Threshold Limit	NIL - TDS applicable on any amount
On What Amount?	Only on cash/monetary consideration, NOT on value of property share
Overrides	Section 194IA (TDS @1% on property) does NOT apply to JDA cash payments

Example of TDS Under Section 194IC:

If developer pays ₹60,00,000 cash to landowner under JDA:

TDS @10% = ₹6,00,000
Net payment to landowner = ₹54,00,000
No TDS on the value of 6 units given to landowner
Developer must issue TDS certificate to landowner

Cost of Acquisition for Subsequent Sale

When the landowner later sells the units received under JDA, a special rule applies for determining the cost of acquisition.

Section 49(7) - Deemed Cost of Acquisition

As per Section 49(7):

The cost of acquisition of units/property received under JDA shall be the stamp duty value considered as FVC under Section 45(5A)
This becomes the cost base for calculating capital gains on future sale
Date of acquisition for holding period: Date of completion certificate

Example - Subsequent Sale:

From Example 1 above:

Mr. Sharma received 6 units with stamp duty value of ₹50,00,000 each on 30th June 2026
If he sells one unit in July 2028 for ₹70,00,000

Capital Gains Calculation (FY 2028-29):

Sale Price: ₹70,00,000
Cost of Acquisition (u/s 49(7)): ₹50,00,000
Holding period: June 2026 to July 2028 = More than 24 months = LTCG
Indexed Cost: ₹50,00,000 × (CII of FY 2028-29 / CII of FY 2026-27)
Capital Gains: ₹70,00,000 - Indexed Cost

Exemptions and Tax Planning Under Section 45(5A)

Landowners can claim various exemptions to reduce or eliminate capital gains tax liability arising under Section 45(5A).

Available Exemptions

Section	Exemption Type	Conditions	Maximum Benefit
Section 54	Purchase/construction of residential house	1. Original asset: Residential house 2. New house purchased within 1 year before or 2 years after transfer, or constructed within 3 years	Entire LTCG (if investment ≥ LTCG) Proportionate (if investment < LTCG)
Section 54F	Purchase/construction of residential house	1. Original asset: Any asset other than residential house 2. Should not own more than one residential house on transfer date 3. Investment in new house as above	Proportionate exemption based on investment in new house vs net consideration
Section 54EC	Investment in specified bonds (NHAI/REC)	1. Investment within 6 months 2. Lock-in period: 5 years 3. Maximum investment: ₹50 lakhs per financial year	Up to ₹50 lakhs of LTCG

Construction Cost Paid by Landowner

Additional Benefit: If the landowner pays construction cost to the developer for their portion of the property, such payment qualifies as investment in residential house for Section 54/54F exemption purposes.

Example:

Landowner receives 6 units worth ₹3 crores
Pays ₹80 lakhs to developer for construction cost of those 6 units
This ₹80 lakhs can be claimed as exemption u/s 54 (if conditions met)

Tax Planning Strategies

Timing of Completion Certificate:
- Coordinate with developer for optimal timing of completion certificate
- Consider your other income and tax bracket for that year
Exemption Planning:
- Plan for Section 54/54F investment before completion certificate year
- Can purchase new house even before completion certificate is issued
Units Retention Strategy:
- Don't sell units before completion certificate to retain Section 45(5A) benefits
- Wait for completion certificate before any sale decision
Capital Gains Account Scheme:
- If unable to invest before ITR due date, deposit amount in Capital Gains Account
- Utilize within prescribed time for exemption
Multiple Properties:
- If receiving multiple units, plan staggered sale to manage tax liability
- Use Section 54EC bonds optimally (₹50 lakhs per year limit)

GST Implications on Joint Development Agreement

Apart from Income Tax, JDA transactions also attract GST implications.

GST Liability on Landowner:

When developer transfers possession/rights in constructed property to landowner, GST becomes payable by the landowner
GST Rate: 18% (as per Notification No. 4/2018 – Central Tax (Rate) dated 25.01.2018)
Taxable Value: Value of constructed property (landowner's share) received from developer
Timing: When conveyance deed or allotment letter is issued
Rationale: Treated as supply of land by landowner to developer, for which consideration is constructed property

Common Mistakes to Avoid

Not Registering JDA:
- Unregistered agreements don't qualify for Section 45(5A) benefits
- Always ensure proper registration under Registration Act
Converting Land to Stock-in-Trade:
- If land is converted to stock-in-trade before JDA, Section 45(5A) won't apply
- Keep land as capital asset for Section 45(5A) benefits
Selling Share Prematurely:
- Selling units before completion certificate leads to loss of tax deferral benefit
- Taxes become payable immediately in year of sale
Ignoring TDS Compliance:
- Ensure developer deducts TDS u/s 194IC on cash payments
- Obtain TDS certificates and verify in Form 26AS
Not Planning for Tax Liability:
- Even with deferral, tax will become payable on completion
- Plan exemption investments well in advance
Incorrect Valuation Date:
- FVC is stamp duty value on completion certificate date, not JDA date
- Use correct valuation date for accurate tax calculation

Important Court Judgments

PCIT v. Chuni Lal Bhagat (2019)

Punjab & Haryana High Court Decision:

Issue: Whether unregistered JDA attracts capital gains
Held: In absence of registration of joint development agreement, agreement did not fall under Section 53A of Transfer of Property Act, 1882 and consequently, Section 2(47)(v) did not apply
Result: No capital gains liability for unregistered JDA
SLP Dismissed: Supreme Court dismissed revenue's Special Leave Petition, confirming the decision
Implication: Registration is critical for both Section 45(5A) applicability and for transfer to occur under Section 2(47)(v)

📚 Related Income Tax Topics

Frequently Asked Questions (FAQs)

Q1: What is Section 45(5A) of Income Tax Act?

Section 45(5A) is a provision that defers capital gains tax liability for individuals and HUFs who enter into Joint Development Agreements (JDA). Instead of paying tax when signing the agreement or handing over possession, tax becomes payable only in the year when the completion certificate for the project is issued by the competent authority.

Q2: Who can claim benefits under Section 45(5A)?

Only individuals and Hindu Undivided Families (HUF) can claim benefits under Section 45(5A). Companies, partnership firms, trusts, and other entities are not eligible. The asset transferred must be land or building or both (held as capital asset), and the agreement must be registered.

Q3: When does capital gains become taxable under Section 45(5A)?

Capital gains becomes taxable in the financial year in which the completion certificate (for whole or part of the project) is issued by the competent authority. This could be several years after signing the JDA, providing significant cash flow relief to landowners.

Q4: How is Full Value of Consideration calculated under Section 45(5A)?

Full Value of Consideration = Stamp duty value of landowner's share in the project (on the date of completion certificate) + any cash consideration received. The stamp duty value is taken as on the completion certificate date, not on the JDA signing date.

Q5: What is the TDS rate on cash payments under JDA?

Under Section 194IC, developers must deduct TDS at 10% (if PAN provided) or 20% (if PAN not provided) on any cash/monetary consideration paid to landowners under JDA. TDS is applicable only on cash component, not on the value of property share given to landowner.

Q6: Can I claim Section 54 exemption on capital gains arising under Section 45(5A)?

Yes, you can claim exemption under Section 54 (if original asset is residential house) or Section 54F (if original asset is other than residential house) or Section 54EC (investment in specified bonds). If you pay construction cost to developer for your units, that payment also qualifies for Section 54/54F exemption.

Q7: What happens if I sell my share in the project before completion certificate?

If you sell your share before the completion certificate is issued, Section 45(5A) will NOT apply to that portion. Capital gains will be computed as per general provisions and will be taxable in the year of sale itself. You lose the benefit of tax deferral.

Q8: Is registration of JDA mandatory for Section 45(5A) benefits?

Yes, registration is absolutely mandatory. Only a "specified agreement" (which means a registered agreement under Registration Act) qualifies for Section 45(5A) benefits. Unregistered JDAs do not get the benefit of tax deferral.

Q9: Does Section 45(5A) apply if land is stock-in-trade?

No. Section 45(5A) applies only to transfer of capital assets (land or building held as investment). If land is held as stock-in-trade (business inventory), this section does not apply and income will be taxed as business income as per regular provisions.

Q10: What is the cost of acquisition for units received under JDA when I sell them later?

As per Section 49(7), the cost of acquisition for units received under JDA shall be the stamp duty value considered as Full Value of Consideration under Section 45(5A). The date of acquisition for holding period purposes is the date of completion certificate.

Key Takeaways for FY 2026-27

Section 45(5A) provides tax deferral benefit on JDA capital gains till completion certificate is issued
Applies only to individuals and HUFs, not to companies or other entities
Agreement must be registered to qualify as "specified agreement"
Capital gains taxable in the year of completion certificate, not in year of JDA signing
Full Value of Consideration = Stamp duty value on completion date + cash received
Developer must deduct TDS @10% on cash payments (Section 194IC)
If share sold before completion certificate, Section 45(5A) doesn't apply to that portion
Exemptions under Section 54, 54F, and 54EC are available to reduce tax liability
Construction cost paid by landowner can be claimed for Section 54 exemption
GST @18% is payable by landowner on receiving constructed property
Proper tax planning and documentation is crucial for maximum benefits

Conclusion

Section 45(5A) of the Income Tax Act is a taxpayer-friendly provision that addresses a genuine hardship faced by landowners entering into Joint Development Agreements. By deferring the capital gains tax liability to the year of completion certificate, it provides much-needed cash flow relief and eliminates the burden of paying tax when no cash consideration has been received. For FY 2026-27, this provision continues to be highly relevant as real estate development through JDA arrangements remains a popular model across India.

However, to fully leverage the benefits of Section 45(5A), landowners must ensure strict compliance with all conditions - particularly the requirement of registration, retention of capital asset status, and holding the share till completion certificate. Proper documentation, TDS compliance under Section 194IC, and strategic tax planning for exemptions under Sections 54, 54F, and 54EC are essential to minimize the ultimate tax outgo.

Given the complexity of JDA transactions involving Income Tax, TDS, GST, and contractual obligations, it is highly advisable to consult with qualified Chartered Accountants and legal professionals before entering into such agreements. A well-structured JDA with proper tax planning can result in significant savings and smooth transactions for both landowners and developers.

As real estate continues to evolve with changing tax laws, staying updated with provisions like Section 45(5A) and planning transactions accordingly can make a substantial difference to your post-tax returns. Make informed decisions and ensure full compliance for a hassle-free development experience.

Need Help with Capital Gains Tax Planning? Explore our comprehensive guides on Capital Gains Taxation, Income Tax Compliances, and ITR Filing for complete tax solutions.