TDS on flats alloted by Builders

[hubert fernandes]

I am a plot owner and have given my plot on JDA to Builder for Development. As consideration for my plot The Builder has alloted 20 flats to me in the said project. Am i required to deduct TDS u/s 194IA ?

[YAGAY andSUN]

In your case — as a plot owner entering into a Joint Development Agreement (JDA) and receiving 20 flats as consideration — the question of TDS applicability under Section 194-IA of the Income-tax Act, 1961 requires careful legal interpretation based on the structure of the transaction.

✅ Section 194-IA – Applicability Overview

Section 194-IA imposes an obligation to deduct TDS at 1% on the consideration for the transfer of immovable property (other than agricultural land), if:

• The transfer of property involves consideration exceeding ₹50 lakhs, and
• The buyer (transferee) is responsible for making the payment.

It applies when:

• There is a monetary consideration, and
• There is a sale or transfer of property as per Section 2(47) of the Income-tax Act.

🔍 Your Case: Joint Development Agreement (JDA)

✅ Key Facts:

• You are not receiving monetary consideration.
• Instead, you are receiving constructed flats (non-monetary consideration).
• The Builder is constructing and allotting flats to you in lieu of land rights.

📘 Legal Analysis

⚖️ 1. Section 194-IA – Not Applicable to Non-Monetary Consideration

• Section 194-IA is triggered only where there is a monetary payment.
• In your case, since the consideration is in the form of barter (i.e., flats against land), there is no "payment" in monetary terms being made by either party that can be subjected to TDS under Section 194-IA.

🔹 CBDT Clarification & Judicial Precedent:

• The CBDT has not issued any circular expanding the scope of Section 194-IA to cover non-monetary consideration.
• In various rulings, courts have noted that Section 194-IA does not apply where no monetary payment is made.

⚖️ 2. Section 194-IC May Apply — For Developer

• If any monetary consideration is also paid to you in addition to flats, then Section 194-ICmay apply to the Builder, requiring TDS @10% on monetary payments made to the landowner under a Joint Development Agreement.

📌 Conclusion

✅ You are not required to deduct TDS under Section 194-IA, as you are not making any monetary payment to the Builder.

❌ Section 194-IAonly applies to monetary consideration for transfer of immovable property, not for barter/exchange of development rights for flats.

🔔 However, if you receive any cash consideration, TDS may be applicable under Section 194-IC, but that responsibility lies with the Builder, not you.

Disclaimer: This discussion is not a Legal Opinion. Discuss it with your CA before taking any action on it.

[Ramanathan Seshan]

Dear Yagay-sir,

Will the transaction not attract 194R ? 

Regards,

S ram

[YAGAY andSUN]

Your follow-up question—whether Section 194R (TDS on benefits or perquisites in business or profession) will apply in a Joint Development Agreement (JDA) where the plot owner receives constructed flats instead of money—is very pertinent, especially in light of recent scrutiny by tax authorities on such barter-like transactions.

✅ Understanding Section 194R – Overview

Section 194R of the Income-tax Act, 1961 (introduced by Finance Act, 2022) requires any person providing a benefit or perquisite to a resident arising from business or profession, to deduct TDS @10% before providing such benefit/perquisite, whether convertible into money or not.

🧾 Key Conditions:

• Benefit/perquisite must arise from business or profession.
• Deductee must be a resident.
• Threshold: Value exceeds ₹20,000 in a financial year.
• TDS @ 10%, even if benefit is non-monetary.
• Applicable even when no consideration is paid.

🏗️ Does Section 194R Apply in a JDA?

🔍 Let’s break down your case:

• You (landowner) are receiving constructed flats as consideration.
• You are not carrying on business or profession in land dealing (presumably, you're an individual plot owner).
• The builder (a business entity) is providing flats in exchange for land development rights.

📌 Section 194R applies only if the recipient (you) is in business or profession.

🛑 If you are an individual or HUF not carrying on business or profession, Section 194R does not apply to the benefit (i.e., constructed flats) received by you under JDA.

✅ However, if:

• You are engaged in the business of real estate, and
• The land is stock-in-trade, or
• The JDA is part of your business activity (as in the case of a builder-to-builder transfer),

👉 Then, the benefit (flats) may be treated as a perquisite in business, and Section 194R can apply, with TDS liability on the provider (i.e., the Builder).

⚖️ Summary of Sections Possibly Involved in JDAs:

Section	Applicability	Trigger
194-IA	❌ Not Applicable	No monetary consideration from you to Builder.
194-IC	✅ Applicable to Builder	If Builder pays monetary consideration to landowner.
194R	❌ Likely Not Applicable	Unless landowner is in business/profession. Then builder may need to deduct TDS on flats given.

🧾 Suggested Compliance Steps for Builder (if 194R applies):

If the landowner is engaged in business, then the builder must:

• Estimate FMV of flats given as perquisite.
• Deduct 10% TDS under 194R before handing over possession.
• Report in Form 26Q quarterly TDS return.

✅ Final Conclusion:

Section 194R will not apply to the landowner receiving flats under a JDA, if the landowner is not carrying on business or profession. The transaction is a capital asset transfer, and 194R applies only where perquisites arise from business or profession.

***

AI Summary

Land Rights Swap: Builder Receives 20 Flats in Development Agreement Without Tax Deduction Under Sections 194-IA, 194-IC, 194R A plot owner entered a Joint Development Agreement (JDA) with a builder, receiving 20 flats as consideration for land rights. The discussion explores tax implications, specifically whether TDS under Sections 194-IA, 194-IC, or 194R applies. Experts concluded that no TDS is required since the transaction involves non-monetary consideration and the landowner is not engaged in a business or professional activity.