Withholding Tax Implications of Joint Development Agreement – Under New Income Tax Act 2025

TDS Implications on Advanced Received under Joint Development Agreement (JDA) under New Income Tax Act 2025

Under the Income Tax Act, 2025 (which governs payments and credits made on or after April 1, 2026), the central government overhauled and consolidated India's direct tax system. While the fundamental tax policy and matching principles remain unchanged, the structural framework, section numbers and compliance forms have completely shifted. The new sections, rules and practical updates relating to old Section 199 and Rule 37BA in the context of Joint Development Agreements are structured below.

What are Joint Development Agreements (JDAs)

A Joint Development Agreement (JDA) is a popular real estate contract where a landowner provides their land to a real estate developer. In return, the developer handles construction od floors on that land. Instead of paying the landowner outright, the developer compensates them with a share of the newly constructed property or project revenue. However, the developer pays an advance sum to the landowner as token money. The balance sale consideration is transferred as the newly constructed floors later when all the floors are ready and the certificate of completion is obtained.

Treatment under New Income Tax Act 2025

Under the old Income Tax Act, 1961, builders used to deduct 10% TDS on monetary consideration in a JDA under Section 194-IC in the initial year when the land is being taken posession by the aforesaid builder. The new Income Tax Act, 2025 has collapsed more than 60 different scattered TDS sections into just three parent sections. All non-salary TDS provisions pertaining to residents (including JDA monetary payments) are now consolidated under Section 393, with effect from April 01, 2026.

Accordingly, builders must now deduct TDS under Section 393(1) using a specific numeric code rather than mentioning Section 194-IC. Erroneously quoting old sections triggers system-level validation errors.

Transition of old Income Tax Act, 1961 - Section 199 & Rule 37BA of old Income Tax Rules, 1961 (The Matching Rule)

The old Section 199 of the Income Tax Act, 1961,  (which governed how credit for tax deducted is given) has been transitioned into Income Tax Act, 2025 (specifically dealing with TDS payments). Similarly, the newly introduced Income Tax Rules, 2026 supersedes the old Income Tax Rules, 1962. Accordingly, the matching protocol previously defined under Rule 37BA(3) continues to apply seamlessly, aligning with the 2025 Act’s transition from "Assessment Years" to a unified "Tax Year" concept.

Under the new tax regime effective from April 01, 2026, the Matching Principle, which states that tax credit follows the year of income taxability, is fully preserved, but its legal anchors have changed.

In this regard, the Income Tax Department's 2026 Transition Guidelines explicitly confirm that TDS credit remains fundamentally linked to the year in which the income is assessable and not the date or year of the deposit of TDS.

Whereas, under the old Income Tax regime, separate challan-cum-statements like Form 26QB (TDS on immovable property) and others operated independently, under the new tax regime starting from Tax Year 2026-27 onwards, the IT department has merged these into a single comprehensive form called Form 141. This unified form acts as the ultimate reference point for PAN-based property transaction deductions, simplifying how the taxpayer maps and views the carried-forward TDS credits against the final taxable transaction.

Unique Problem of TDS credit due to different years of receipt and taxability

In a typical JDA setup, often landowners face tha challenge of TDS beinf deducted in initial year and thereafter since the construction takes sometime and capital gains is computed in the year when the construction is completed or posession is handed over to the landowner. In such situations, since there is a gap of couple of financial years between the year in whicn the TDS has been deducted and the year in which the capital gains is taxed. In such cases, landowners often face the challenge of claiming the TDS credit on the advance payment received against the capital gains tax that appears later in time.

So, when a builder deducts tax under section 393 of the new Income Tax Act, 2025, the electronic ledger will flow into the taxpayer’s Form 168 (the new equivalent of Form 26AS/ AIS – the tax credit statement for Tax Year 2026-27 onwards). The taxpayer is required to continue to push this TDS credit forward into subsequent years' ITRs until the year in which the builder formally hands over the completed property possession to the landowner and capital gains arise in the hands of the landowner, agaist which the landowner can adjust the aforesaid carried forward TDS credit.

In order to provide a clarity on how to carry forward such TDS credit and how to finally claim it against the capital gain arising in later year, here’s a step by step procedure to be followed under the new Income Tax regime:

1) When a builder deducts TDS on a Joint Development Agreement (JDA) in an initial year, Form 168 acts as tye taxpayer’s digital tax passbook, displaying the credit. However, to carry that credit forward until the year of property possession, the taxpayer must actively configure it within their Income Tax Return (ITR) utility. Accordingly, in the TDS deduction year, when the builder deposits the tax under Section 393 (the new consolidated non-salary TDS provision), the entry dynamically populates in taxpayer’s Form 168 under the TDS section, displayed as a highly structured row containing the following details:

• Deductor Details: Builder’s Name & TAN;

• Section Code: Reflecting the 2025 Act code;

• Transaction Amount: The monetary advance or consideration paid to the taxpayer; and

• Total TDS Deducted: The 10% tax deposited against the taxpayer’s PAN

2) The Step-by-Step E-Filing Process to Carry Forward TDS

Since Form 168 is an information statement generated by the department, the taxpayer cannot edit Form 168 directly. Instead, one can manage the carry-forward tracking inside Schedule TDS when filing their actual ITR.

In the Initial Year (Year of JDA Signing):

The taxpayer, when filing their return for the Tax Year, should undertake the following steps:

a) Should go to Schedule TDS in the online ITR e-filing utility.

b) To locate the specific transaction row auto-imported from taxpayer’s Form 168.

c) To look for the sub-columns split into:

• TDS Credit brought forward from earlier years – to keep this INR 0.

• TDS deducted during the current financial year (This will show the builder's full deduction amount).

• In the two final columns asking how to allocate this tax, the amount claimed in the current return should be zero since the taxpayer is not offering the Capital Gains to tax yet.

d) In the coloumn showing amount to be Carried Forward to subsequent years, the taxpayer should enter the Full TDS Amount and submit the ITR.

This enables the tax system to log this amount as a "deferred tax credit" linked to the taxpayer’s PAN.

In the Final Year (Year of Transfer of Possession / Completion of Construction)

When the builder completes the project and hands over the possession, the taxpayer’s capital gains become legally taxable. In this Tax Year’s ITR, the taxpayer should adopt the following steps:

a) Open Schedule TDS in your ITR utility.

b) Navigate to the section titled: "TDS Credit Brought Forward from Earlier Years".

c) Manually add a row or check the pre-filled field to pull the accumulated credit forward from the initial year.

d) To fill in the following details:

• The Tax Year in which the deduction originally took place.

• The TAN of the builder.

• The Amount being brought forward.

e) Under the allocation columns, move this entire amount to "Amount claimed in this current return".

f) Map it directly to your reported Capital Gains Income schedule to offset the taxpayer’s final tax liability.

Conclusion: Why Doing This Correctly via Form 168 Protects the Taxpayer ?

The Central Board of Direct Taxes (CBDT) automated processing engines match total tax claims against Form 168 records. If the taxpayer tries to claim the TDS credit in Year 1 without showing corresponding income, the software triggers an automatic Section 143(1) prima facie adjustment notice for an income-tax mismatch. On the other hand, where the taxpayer marks the TDS credit as "Carried Forward" in their tax return in the initial year, ensures the system safely parks the TDS  credit of such taxpayer, without red-flagging their account.

(Disclaimer: This article is prepared solely for the purpose of awareness and professional education of Chartered Accountants, Advocates and other legal and tax professionals. It does not constitute legal or tax advice. The provisions discussed herein are based on statutory text and publicly available explanatory material as of the date of preparation. Practitioners are advised to examine the latest notifications, circulars and judicial precedents before advising clients. Neither the author nor the firm and companies she represents, nor any of its employes or associates, are responsible for any action taken based on this material without independent professional verification.)