Joint development agreements: how income tax and GST actually apply

Short answer: a JDA is two transactions wearing one document. The landowner transfers development rights; the developer supplies construction services back. Income tax looks at the first, GST at both — and the two taxes disagree about when anything happened. For an individual or HUF landowner the capital gains charge is deferred to the completion certificate under s.67(14); the GST on development rights is largely exempt until that same moment, and then it is not.

The structure, before the tax

Almost every JDA dispute traces back to treating the arrangement as a single sale. It is not. Two supplies move in opposite directions:

1. Landowner → developer: the land, or rights to develop it. Consideration is a share of the finished project (area-sharing), a share of receipts (revenue-sharing), or a mix, sometimes with cash on top. The two are not interchangeable for tax — see area sharing or revenue sharing, and the valuation GST never prescribed.
2. Developer → landowner: construction of the landowner's share. This is a service, and the landowner has paid for it — in land.

The second leg is the one landowners do not expect, and it is where the GST they were never warned about comes from.

Where the landowner is a co-operative housing society rather than an individual, both legs still run — but what reaches the members is corpus, hardship compensation and rent rather than sale proceeds, and each is taxed on its own footing. That is worked through in what members and societies pay on a redevelopment.

Income tax — the landowner

The deferral, and who gets it

Section 67(14) of the Income-tax Act, 2025 — the old Section 45(5A) — defers the capital gains charge for an individual or HUF landowner under a registered specified agreement, to the tax year in which the completion certificate is issued for the whole or part of the project.

Full value of consideration is then:

stamp duty value of the landowner's share in the project on the date of the completion certificate + any monetary consideration received

The point of the provision is cash flow. Without it, signing a JDA triggers a tax bill in a year when the landowner has received nothing but a promise.

The four ways the deferral is lost

It is conditional, and each of these takes the transaction back to ordinary capital gains in the year of transfer:

• The landowner is not an individual or HUF. A company, LLP or firm gets no deferral at all. The gain arises when the development rights are transferred — typically on execution and handover of possession.
• The share is transferred before the completion certificate. Selling or assigning the entitlement early forfeits the deferral entirely, and the gain is computed and charged in the year of that transfer.
• The agreement is not registered. A specified agreement has to be a registered agreement. An unregistered arrangement, however commercially real, does not attract the section.
• The land is stock-in-trade, not a capital asset. For a landowner already in the business of dealing in land, the profit is business income and the capital gains machinery — deferral included — never engages.

After the certificate

The stamp duty value that was treated as consideration becomes the landowner's cost of acquisition for the units received. Their holding period restarts at the date of the completion certificate. A landowner who sells soon after handover is therefore realising a short-term gain on a property they have in substance held for years — a result that surprises people, and one worth planning around rather than discovering afterwards.

TDS

Monetary consideration paid to a resident landowner under a JDA attracts TDS at 10%. It applies to the cash component only — the built-up area or the share of the project carries no TDS under this head, which is a frequent misapplication in both directions.

The 2025 Act abolished the standalone 194-series sections and consolidated deductions on payments to residents into the table at s.393(1), so this deduction now sits there rather than at its own section number — see the consolidated TDS guide. Cite the row from that table rather than the old 194-series number for anything from tax year 2026-27 onwards. For what the deduction covers on a JDA specifically — and the two directions it is commonly misapplied — see TDS on JDA consideration.

Income tax — the developer

Different regime entirely. The development rights are acquired as stock-in-trade, not a capital asset, so:

• The cost of acquiring development rights forms part of inventory, not a capital cost.
• Revenue is recognised on the applicable accounting basis — Ind AS 115 or the relevant income computation standards — rather than on receipt.
• Sale of units below stamp duty value attracts the stock-in-trade equivalent of the full-value substitution rule, so a distressed sale can be taxed on a figure higher than the price actually received.

GST — the harder half

Development rights are a service, not land

The starting objection is always the same: land is outside GST under Schedule III, so how can transferring rights over it be taxable? The revenue's position, upheld in litigation, is that a transfer of development rights under a JDA is not a sale of land — it is a supply of service, and taxable. That position has been upheld at High Court level, but it has been contested and should not be treated as beyond argument. Where a demand turns on it, the current appellate status is worth checking rather than assumed.

The same boundary decides a different question for plotted development, where what is sold is land with works done to it rather than a building — when GST applies to the sale of developed plots.

The exemption that does most of the work

Development rights are exempt to the extent of residential apartments booked before the completion certificate or first occupation. What survives is:

• development rights attributable to residential units still unbooked at that date, on which the developer pays under reverse charge; and
• development rights attributable to commercial units, which get no exemption — a point routinely missed in mixed-use projects.

For residential units, the tax on development rights is also capped by reference to the rate applicable to the unbooked units, so it cannot exceed the tax that would have been paid had they simply been sold.

The practical consequence: the exemption is a function of sales velocity. A project that sells out before completion pays almost nothing on development rights. A project sitting on unsold stock at completion pays on all of it — at the worst possible moment, when sales have already disappointed. How that liability is computed, and what can still be done about it as the certificate approaches, is in unsold inventory at the completion certificate.

The construction service back to the landowner

Taxable, at the residential rates: 1% for affordable housing and 5% otherwise, both without input tax credit. These were left untouched by the September 2025 rate rationalisation.

Value is not the landowner's notional cost. It is benchmarked to what independent buyers were charged for similar apartments nearest to the date the development rights were transferred — so a project whose prices rose after signing is valued at the earlier, lower figure. Time of supply is deferred to the completion certificate or first occupation, whichever is earlier.

From the landowner's side this is an invoice they did not expect and a credit they usually forfeit — set out in the GST the developer charges you, and the credit nobody claims.

When the landowner sells the allotted units

• Before the completion certificate: GST applies on the sale, and the landowner can claim credit for the GST the developer charged on the construction service. Landowners routinely pay the developer's GST and never claim this.
• After the completion certificate: outside GST altogether, as a sale of completed property.

That single date changes the answer completely, and it is the most valuable thing a landowner can be told before they market their share.

The 80:20 procurement rule

A residential promoter must buy at least 80% of inputs and input services from registered suppliers. Shortfall is taxed at 18% under reverse charge. The rule remains in force and the department is actively cross-checking it — including against RERA filings, which is now a live source of notices. The rule and the shortfall computation are worked through in the 80:20 procurement rule and RCM on the shortfall; why the RERA cross-check produces the notice is in RERA filings vs GST returns.

Cement bought from an unregistered supplier carries reverse charge regardless of whether the 80% test is met, at 18% — note that a great deal of published guidance still says 28%, which was the rate before GST 2.0 moved cement to 18% on 22 September 2025.

Scenario summary

What this means in practice

The two liabilities that hurt most both land on the same date — the completion certificate. The landowner faces a capital gains charge measured on the stamp duty value of property they cannot readily sell, and the developer faces reverse charge on development rights attributable to inventory that has not sold. Neither is optional and neither generates the cash to pay it.

Both are foreseeable at signature. The sharing ratio, the registration of the agreement, whether monetary consideration is included, and the expected sales profile before completion all change the outcome materially — and all of them are negotiable before the document is executed and fixed afterwards. Where the sharing structure itself is still open, that decision is worked through in area sharing or revenue sharing: the deferral, and the valuation GST never prescribed.

Which rate the project pays at all is decided before any of this, by whether the commercial carpet area stays within 15% — see RREP or REP, and the rate that follows.

This is a working reference, not the statute. For anything you are relying on, confirm the section and notification text directly.