Pranav B Prem

In a move aimed at standardizing the assessment of capital gains arising from Joint Development Agreements (JDAs), the Central Board of Direct Taxes (CBDT) has issued a detailed “Best Practices and Standard Operating Procedure (SOP)” for identifying and verifying cases under Section 45(5A) of the Income Tax Act, 1961. The guidelines, issued through an Office Memorandum dated 15 September 2025, seek to bring uniformity in assessment procedures across jurisdictions and strengthen compliance and revenue collection.

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Background and Objective

Prior to the enactment of Section 45(5A) through the Finance Act, 2017, landowners entering into development agreements were required to pay capital gains tax in the year the agreement was signed — even before receiving their share of the developed property. This led to genuine hardship, as tax liabilities were triggered without actual monetary inflow. To address this, Section 45(5A) was introduced, allowing individual and Hindu Undivided Family (HUF) landowners to defer the tax liability to the year in which the completion certificate for the project is issued by the competent authority. Under this provision, the deemed consideration for computing capital gains is the stamp duty value of the landowner’s share in the project on the date of completion, along with any monetary consideration received.

Background to the Current SOP

The new SOP follows a directive issued by the CBDT on 21 October 2024 (F.No.434/07/2024-IT(DAC)), which had instructed its Investigation Wings to gather data on completion certificates issued by competent authorities for the past three financial years (FY 2021–22 to FY 2023–24). The earlier communication also required identification of authorities responsible for issuing occupancy-cum-completion certificates and assessing the feasibility of integrating such data with the Income Tax Department’s systems. Pursuant to these directions, the Directorate General of Income Tax (Investigation), Kolkata Charge, conducted a detailed study and developed a model process to identify potential cases of undisclosed capital gains from JDAs. This successful model has now been adopted as the basis for the nationwide SOP.

Best Practices Adopted by the Kolkata Investigation Wing

The Kolkata model relies heavily on data-driven analytics and inter-agency coordination. The SOP outlines the following key steps to detect and verify undisclosed capital gains:

• Use of RERA/HIRA Data:
  Accessing the Real Estate Regulatory Authority (RERA) or Housing Industry Regulation Act (HIRA) portals to identify registered and approved real estate projects executed through JDAs.

• Identification of Relevant Projects:
  Shortlisting projects where landowners are individuals or HUFs by examining available development agreement details.

• Cross-Verification with Tax Returns:
  Using the CPC 2.0 portal, investigators review income tax returns for the relevant assessment year in which the project completion certificate was issued.

• Checking Capital Gains Disclosure:
  Scrutinizing Schedule-CG in the tax return to verify whether capital gains were reported as per Section 45(5A).

• Follow-up through Summons:
  In cases of non-disclosure, a summon under Section 131(1A) is issued to the landowner to obtain explanations and supporting documents.

CBDT highlighted that this methodology enables tax authorities to proactively identify non-compliance rather than relying on chance detection or third-party inputs. The SOP aims to ensure non-intrusive, transparent, and evidence-based enforcement through systematic cross-verification. If RERA data is incomplete or unavailable, the SOP instructs officers to approach the concerned development authorities directly to collect details of JDA-linked projects.

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Nationwide Implementation

The Kolkata model has been adopted as a template for all Investigation Directorates across India, with each Directorate directed to implement similar practices to improve accuracy and timeliness in the assessment of capital gains under JDAs.The Directorates have been instructed to submit implementation reports to CBDT by 31 October 2025, confirming adoption and progress. The Office Memorandum, issued with the approval of the Chairman, CBDT, underscores the Board’s commitment to a data-integrated, technology-based approach to strengthen tax compliance while ensuring fairness in enforcement.