s.194-IC — Tax deducted on cash paid under a joint development agreement
Any person paying a resident monetary consideration under a joint development agreement covered by section 45(5A) must deduct ten per cent, with no threshold, overriding section 194-IA.
Inserted by section 65 of the Finance Act, 2017, which came into force on 1 April 2017 under section 1(2) of that Act. The counterpart in the Income-tax Act, 2025 is serial 3(ii) of the Table in section 393(1).
Income-tax Act, 1961
s.194-IC
Income-tax Act, 2025
s.393(1) Table serial 3(ii)
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 194-IC of the Income-tax Act, 1961 provides that, notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in section 45(5A), shall at the time of credit or payment, whichever is earlier, deduct ten per cent of the sum. There is no threshold. The agreement referred to is a registered agreement under which an owner of land or building allows another person to develop a real estate project in consideration of a share in it, and section 45(5A) applies only where the owner is an individual or a Hindu undivided family. The Mumbai Tribunal held in Nathani Parekh Constructions in July 2024 and N Rose Developers in January 2025 that alternate accommodation charges and hardship allowance paid in redevelopment are compensation for dispossession and not consideration under the agreement, and in Sugee Seven Developers in October 2025 that genuine cash paid to an individual under a joint development agreement attracts ten per cent under this section rather than one per cent under section 194-IA. The counterpart in the Income-tax Act, 2025 is serial 3(ii) of the Table in section 393(1), at ten per cent with a nil threshold, and Note 2 to serial 3 provides that where serials 3(i) and 3(ii) both apply, tax is deducted under 3(ii) only.
What the provision does
Requires ten per cent to be withheld from monetary consideration paid to an owner under a registered joint development agreement within section 45(5A), and displaces section 194-IA for that consideration. It does not apply to consideration in kind such as the owner's share of constructed area, to payments under an agreement with a company, firm or cooperative society as owner, or, on the Mumbai authority, to hardship compensation and rent for alternate accommodation.
Threshold questions
- Is the payee an individual or Hindu undivided family owner under a registered agreement within section 45(5A)
- Is the payment consideration for the owner's transfer, as distinct from compensation for hardship or displacement
- Is the consideration a sum of money rather than consideration in kind
- Has tax been deducted at ten per cent at the earlier of credit and payment, with no threshold
- If tax was not deducted, has the payee returned the income and paid tax so that the first proviso to section 201(1) applies
In practice
The recurring disputes.
Hardship compensation and rent for alternate accommodation
The Revenue's argument is that every sum paid to an owner under a specified agreement is consideration under it, so that monthly rent and hardship compensation paid in a redevelopment attract ten per cent. The developer's argument, accepted in Nathani Parekh Constructions and N Rose Developers, is that consideration under the agreement means what is paid as part of the share in the land or building, and that compensation for dispossession is not paid for the transfer at all. The Tribunal has so far accepted the developer's argument, and no High Court decision on the section was traced.
Agreements signed by a cooperative housing society
The developer's argument is that a cooperative society is not an individual or a Hindu undivided family, so a development agreement with a society is not the agreement referred to in section 45(5A) and nothing paid under it is within this section. The Revenue's argument is that each member who surrenders a flat under a registered permanent alternate accommodation agreement for a new flat is an individual owner under a specified agreement, so that cash paid to a member as consideration, as distinct from compensation, is within the section. Nathani Parekh and N Rose were decided on the nature of the payment and did not decide this point, which is open.
The choice between section 194-IA and section 194-IC
Where cash is paid to an individual owner who also receives a share, section 194-IC applies notwithstanding section 194-IA, as Sugee Seven Developers held, and the Tribunal there remanded the matter to verify whether the payee had offered the sums to tax rather than sustaining a demand automatically. Where an owner is bought out entirely for cash with no share, the agreement is not one in consideration of a share and section 194-IA applies. The difficult case is a mixed one in which the cash is large and the share small; the Revenue relies on the words of section 45(5A), which accept any share. The payee's argument is that a nominal share attached to a large cash price is a sale in substance, to which section 194-IA applies at one per cent, and that a label should not change the rate tenfold. No decision on a mixed case was traced.