[Opinion] Income-tax Implications and Accounting in the Real Estate Sector – Demystifying JDAs & Other Construction Contracts
- Blog|News|Income Tax|
- 2 Min Read
- By Taxmann
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- Last Updated on 15 December, 2023
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Navneet Singal – [2023] 157 taxmann.com 255 (Article)
Introduction
“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy”.
This quote by renowned American businessman Mr. Marshall Field emphasizes the importance of the real estate sector. The real estate industry in India’s economy currently provides about 6-8 percent of the country’s GDP, and by 2025, it is projected to contribute roughly 13 percent. The Indian real estate market is predicted to reach $1 trillion by 2030, ranking third in the world. Now, it is the third largest employer in the nation, behind manufacturing and agriculture, with over 50 million workers.
The real estate sector is evolving, encompassing expansion in the commercial and residential domains. Real estate projects could take the form of group housing societies, commercial complexes, residential townships, or industrial townships. Large sums of money and long-term agreements between developers, landowners, and eventual purchasers are involved in these projects. It has been challenging to comprehend the numerous transaction types, the year and form of income recognition, and to levy taxes on them due to the unique characteristics of these projects.
The author of this article has attempted to shed light on the nature of Joint Development Agreements (JDAs) and other construction contracts in the real estate sector, given a lengthy history of litigation. He has attempted to analyse the income-tax implications on the real estate sector under the following heads:
I. Joint Development Agreements (JDAs) and other Construction Contracts
II. Landowner – Income-tax implication
(a) Amount of consideration received and year of taxability
(b) Implication, if the JDA is not registered
(c) Exemption available to the Landowner on sale of property
(d) TDS Provisions
III. Builder or Developer – Accounting and Taxability
(a) Selection of Accounting method (Completed Contract Method (CCM) vs. Percentage of Completion Method (POCM))
(b) Applicability of guidelines and accounting standard in different scenarios
(1) Sale of constructed property
(2) Sale of under constructed property
(3) Taxability of unsold flats
(c) Deduction to Builder/Developers for affordable housing u/s 80-IBA
IV. Conclusion
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