CBDT Issues SOP to Track Capital Gains from JDAs: Why Taxpayers Need to Watch Out

The Central Board of Direct Taxes (CBDT) has released a standard operating procedure (SOP) to monitor capital gains from Joint Development Agreements (JDAs). This brings a sharper scrutiny to a long-contested area of real estate taxation.

According to Deepesh Chheda, Partner at Dhruva Advisors, taxability in JDAs has been a matter of legal dispute for years. “Courts have taken different views on the point of transfer. While some held that transfer happens on receipt of consideration, there are rulings, including that of the Bombay High Court, which have held that transfer happens in the year of execution of the joint development agreement. Consequently, landowners were exposed to capital gains tax in the year they executed the JDA, often well before receiving any developed property or monetary consideration,” he explains.

To ease this burden, Section 45(5A) of the Income Tax Act was introduced in 2017. It shifted the incidence of tax to the year in which the competent authority issues the completion certificate for the project (or part of it).

For calculation, the stamp duty value of the landowner’s share on that date, plus any cash component received, is considered. According to Chheda, this provision “offered clarity and reduced hardship for individuals and HUFs entering into JDAs, who otherwise faced tax liability without having realised actual gains.”

However, a fresh challenge has emerged in practice. Since JDAs often involve a significant time gap between signing the agreement, receiving part payments, and the final completion certificate, income reporting has not always matched what Section 45(5A) requires.

“This timing gap may cause JDA transactions to be overlooked or not properly offered for tax, including cases where income may get reported in different years as against the year of receipt of the completion certificate,” Chheda observed.

Now, to address such inconsistencies, the CBDT issued a memorandum (dated September 15) which sets out a structured and data-driven monitoring process. Here’s what the SOP states:

• Tax officers will use Real Estate Regulatory Authority (RERA) portals to track JDA-linked projects

• They will cross-check them with income-tax returns

• And verify disclosures under the capital gains schedule

• Wherever they find mismatches, notices under Section 131(1A) can be issued to seek clarifications and supporting documents.

The SOP builds on practices already used by the Kolkata investigation wing, which successfully deployed regulatory data and ITR cross-verification to uncover undisclosed capital gains. All directorates have now been instructed to adopt the model and report back by October 31.

While the intent is to tighten compliance, tax practitioners say execution will be key. Some fear that immediate issuance of summons may create unnecessary trouble in genuine cases.

But Chheda underlined the importance of readiness on the taxpayer side.

“For individuals and HUFs covered by Section 45(5A), it is crucial to maintain meticulous records of JDAs, monitor the status of completion certificates, and ensure accurate and timely disclosure of capital gains in their tax returns. Failure to do so may now be systematically identified, leading not only to tax demands but also penalties in some cases,” he states.

For landowners entering JDAs, the tax department’s message is clear: capital gains reporting is no longer a matter that can slip through the cracks.