Section 194-IC: TDS on Payment under Specified Joint Development Agreement

1. Meaning of Section 194-IC and specified agreement

Section 194-IC was introduced by the Finance Act, 2017, with effect from 1 April 2017. Its purpose was to collect tax at source when a developer or another person pays monetary consideration to a resident landowner under a specified agreement referred to in Section 45(5A) of the Income-tax Act, 1961.

A joint development agreement is generally an arrangement under which a landowner permits development of land or a building in return for a share of the developed property, monetary consideration, or both. For the special capital-gains provision, a specified agreement is a registered agreement meeting the conditions in Section 45(5A), including development of a real estate project in consideration of a share in the project, with or without a monetary component.

The central statutory rule was that, notwithstanding Section 194-IA, a person responsible for paying a resident any consideration other than consideration in kind under such an agreement must deduct 10% at the earlier of credit or payment.

2. Who is required to deduct TDS?

The person responsible for paying monetary consideration under the qualifying agreement is the deductor, commonly the developer. The payment must be made to a resident payee. Section 45(5A)'s special capital-gains treatment concerns resident or other eligible individual/HUF landowners within its statutory scope; the agreement and payee status must be examined before applying Section 194-IC.

For non-resident landowners, the applicable withholding regime may instead involve Section 195 of the 1961 Act or the relevant non-resident provisions of the 2025 Act. Do not assume that the 10% resident-payment rule applies to non-residents.

What payments are covered?

Covered monetary consideration may be paid by bank transfer, cheque, draft, cash or another payment mode. The label used in the agreement is not decisive; the substance of the payment matters. Pure consideration in kind, such as constructed flats allotted to the landowner, is not itself subject to deduction under Section 194-IC.

Refundable deposits and reimbursements require examination of the agreement and actual facts. They should not automatically be treated as consideration merely because money changes hands.

3. TDS rate, threshold and time of deduction

Crediting an amount to a suspense or similar account may have consequences under the applicable general TDS provisions; accounting entries should be assessed on their substance and the governing law.

4. Connection with Section 45(5A): capital gains on a JDA

Section 45(5A) of the 1961 Act provides special timing for capital gains arising to an individual or Hindu undivided family from transfer of land, building or both under a qualifying specified agreement. Subject to its conditions and exceptions, capital gains are taxed in the year in which the competent authority issues the completion certificate for the whole or part of the project.

For valuation under the amended provision, the deemed full value of consideration generally comprises the stamp duty value of the landowner's share in the developed project on the relevant completion-certificate date, plus monetary consideration received through cash, cheque, draft or other mode. The Finance Act, 2023 clarified the inclusion of non-cash payment modes for monetary receipts, effective from assessment year 2024-25.

Where the landowner transfers the share in the project before issuance of the completion certificate, the special timing rule may not apply and ordinary capital-gains provisions must be examined. TDS deducted on the monetary component is normally claimed as tax credit in accordance with applicable rules.

5. Position under the Income-tax Act, 2025 from 1 April 2026

For relevant credit or payment events from 1 April 2026, the corresponding resident withholding provision appears in Section 393(1), Table serial number 3(ii), covering monetary consideration under a joint development agreement referred to in Section 67(14) of the Income-tax Act, 2025. The prescribed rate remains 10%, with no monetary threshold.

For an earlier credit or payment event on or before 31 March 2026, the relevant TDS provisions of the Income-tax Act, 1961 govern that event. For new-Act reporting, use the applicable Section 393 table entry rather than relying solely on the old Section 194-IC identifier.

For the statutory text, see the Income Tax Department's Section 393 and its TDS rate table.

6. Practical TDS calculation and compliance

Example 1: Monetary payment plus constructed flats

A developer agrees to allot constructed units to a resident individual landowner and pay Rs. 30,00,000 in monetary consideration. TDS on the monetary amount at 10% is Rs. 3,00,000. The developer generally pays the balance of Rs. 27,00,000 after withholding. The constructed units are not included in the Section 194-IC TDS base.

Example 2: Payment in instalments

If monetary consideration of Rs. 12,00,000 is credited in two instalments of Rs. 5,00,000 and Rs. 7,00,000, the normal 10% deduction is Rs. 50,000 and Rs. 70,000 at the respective earlier credit or payment events, subject to the governing law and any applicable higher-rate provisions.

Compliance checklist

1. Confirm the agreement is a qualifying registered JDA and identify the resident payee and actual monetary consideration.
2. Verify PAN, deductor registration/TAN requirements and any applicable statutory higher-rate rule.
3. Deduct TDS at the earlier of credit or payment and deposit it by the prescribed due date.
4. Report the transaction in the applicable TDS statement and issue the prescribed TDS certificate.
5. Reconcile credits with the payee's tax records and retain the agreement, payment proofs and computation.

For payment and filing services, consult the Income Tax e-Filing Portal. Forms, filing references and procedures may differ for periods governed by the 1961 Act and the 2025 Act.

7. Frequently asked questions

8. Official legal references

• Section 194-IC, Income-tax Act, 1961 - Income Tax Department
• Section 393, Income-tax Act, 2025 - Income Tax Department
• Section 45, including Section 45(5A) - Income Tax Department
• Income Tax Department guide on joint development agreements (PDF)
• CBDT Circular No. 1/2024 - explanatory notes on Finance Act, 2023 (PDF)
• Income Tax Department - TDS rates