Can you guess an agreement with 18% GST? But still, considered to be the most profitable way for property development? Yes, it’s the Joint Development Agreement(JDA).
The landowner contributes by giving the land and, the builder adds development activity to the provided land. The article enlightens profit gain and the risk factors associated with the agreement.
Registration Of The Agreement
- The registration takes place in the sub registrar’s office.
- A notarized or signed stamp paper of Rs.200 cannot register JDA.
- Only a proper registered JDA could claim justice.
Why People Avoid Document Registration?
Stamp duty is a must for registration of all documents in India under the Registration Act.
This is the primary reason for people to avoid registration. Depending upon the state, the rate of stamp duty varies. The rate rates also depend on the document’s registrant being a male, a female, or a legal corporate entity like a company. Another reason for variation depends on whether it is a sale, lease, gift, mortgage transaction, etc.
Stamp Duty Rate In Tamil Nadu
- The Stamp Duty is fixed as 7% of the market value of the property.
- The Registration Fee is fixed as 1% of the market value of the property.
Important pre-requisite includes the knowledge to distinguish deed from the agreement,
i. An agreement is a downgraded document among parties.
ii. This verbal or written formatted document is not valid in court.
iii. Yet, a deed is a legal script containing all expected consequences and rights of parties agreeing.
iv. The court values it as an attested document.
Commitment Of The Developer
- Lump-sum compensation if the agreement breaks,
- Percentage of sales revenue or
- A specified percentage of the project was constructed on the piece of land.
Benefits Of JDA
By getting into JDA, I can assure you that, you can be free from buying land and, the capital amount gets invested only in the construction of the building.
How Is Joint Venture Different From Joint Development Agreement?
A joint venture(JV) is a much broader concept than a Joint Development Agreement(JDA).
JV is a deal between many parties for accomplishing a specific task which may or may not be a real estate project, whereas JDA concentrates on the development of the property.
Definition Of Few Terms
Before getting deep into the article, let us be clear with the common terms used in the article :
- Enterprise- often refers to complex projects.
- Demolition-destruction or bulldozing
- Liability– a person owing a sum of money
- Benami property– The definition of Benami property is recently amended in 2015, It’s “The Benami Transactions (Prohibition) Bill,” 2015.
The property is with a fictitious name,
The property owner is blind to the property transaction/ownership,
The person who paid for the property transaction is not explicit.
In simple words,
Person A pays consideration value for the property of person B. In such cases, person B is completely unaware of the existence of the property. The advantage is, Benami property is free from property registration charges. In this case, person A gets the exception.
GPA, SPA– Special Power of Attorney (SPA), and General Power of Attorney (GPA) are the main categories of Power of Attorney,
While a SPA transfers the specific rights to the person, the GPA gives the right to the holder to do whatever is necessary. The assesses are responsible for taking up taxes due to the income earned the previous year.
Amenities– facilities or attraction points.
The Issues To Avoid When Drafting Real Estate Joint Venture Agreements
a. Pressure from developer to accept the deal,
b. Splitting the rewards of the agreement,
c. A breach in the agreement.
d. The dispute between the parties.
It’s well and good for investors to seek competent counsel to avoid drafting issues.
Transferring Right To The Family Member
You are the landowner, and you are transferring your property to a power of attorney in your family, In such a case, you should ask the buyer to deposit money to that person through GPA,
Key Points to Note
- Each member’s contributions to the capital or operations of the enterprise.
- Tax consequences, such as predefined tax profits or losses, could make the situation worse.
Good Co-operation Is Must
A good understanding is a must between the builder and the landowner. The landowner gets 30-40% of the total profit and the right to sell a specific number of flats and, the developer takes the remaining ones. But, if any flaw arises, the owner has the right to revoke the property even from the Power of Attorney.
Stay Away From Fraudulence
Loan sanction from a reputed bank becomes doubtful without a proper registered JDA.
But the developer may trap you by other non-banking finance companies, which may or may not be the right way out.
- forgery by landowners,
- unsanctioned loans may spoil your home buying plan.
- It’s good for one to check the record of the developer before getting into an agreement.
Beware, A buyer must seek NOC from the builder or, accomplishing a tri-party Assignment deed could also do the needful, In considerable cases, builders tend to be indifferent to sign assignment deed or issue NOC. It is safe to avoid investment in such property.
People of the family are present during the Joint Development Agreement.
In such cases,
The GPA holder is either one of the landowners present in the family, some family settlement agreements among landowners could also be a reason for this. In most cases, the landowners were “Benami holders” So, the buyer has to be extra cautious.
Awareness about fraudsters in business could make you precautious, but being aware of laws could save you from losing the property due to ignorance. The profit on property sold after less than a year of ownership is treated for tax purposes as if it were wages or salary, and it’s known as capital gains tax.
Note that this tax is liable only to the owners, so developers should be careful!!!!!
You are a Buyer. To pursue a home loan, you make sure to checklist the below items:
NOC (No Objection Certificate)
Before starting the construction, builders must get NOC from all Government departments, in certain states, almost 19 different departments which include:
- Fire & Safety,
- Pollution Control Board, and
- the Electricity department produces NOC.
The No Objection Certificate is mandatory to purchase a property.
Payment Receipts (Builder)
If you’re the first person to purchase a property from the builder, ensure that you collect the original payment receipts from the builder to claim a loan. Banks generally require the original proof of payments before sanctioning a Home Loan.
Sale Deed (Title deed /Mother Deed/Conveyance Deed)
- It’s the most important legal document required while buying a property.
- This can make a sale and transfer in ownership of the property evident to you.
- It is also an essential document to sell the property after a few years since it serves as proof of ownership.
- Registered at the Sub Registrar’s office during property jurisdiction.
- The property jurisdiction takes place within four months from the sale date.
1. Who bears the GST tariff?
Developer transfers rights in the constructed building to the landowner with conveyance deed.
Thus, through that, GST becomes payable to the Landowner.
2. What is the agreement period?
Approximately about 5 to 7 years.
3. What if there arises any dispute between the owner and the developer?
In case of dispute about the land during the project implementation,
the joint venture partner (private agency) solves at their own cost without obligation.
4. What if the GPA holder dies?
The GPA deed disappears with the power agent; the heirs of the power agent are not entitled to any power. There is no will executed in the name of the legal heirs. Once the GPA holder dies, the power carried to heirs becomes invalid.
5. What is the difference between a construction agreement and joint development agreement?
A construction agreement is an agreement where one party contracts another party to construct a particular building. A Joint development agreement is an agreement where both parties agreements to develop/ construct.
6. What is section 45 of the Income Tax Act?
Section 45 of the Income Tax Act, 1961, tells that if you have earned a profit from the transfer of a capital asset, you have to pay the income tax. This is applicable if it happened in the previous year, and the section under which it is charged is “Capital Gains.”
7. How do you calculate capital gains tax on a joint development agreement?
As per section 194-IC, if under a joint development agreement, any developer pays an amount to the landowner besides the project’s share, the developer can deduct TDS @ 10% on such payment.
I found that it’s profitable for the landowner to get into this agreement instead of selling the land. It’s profitable for the builder if the builder owns the land. Thus, I conclude by saying,” with the knowledge gained from the article, one can get ideas to secure business agreements with proper clauses and disclaimers.”