The importance of private sector in Indian economy over the last 15 years has been tremendous.

The opening up of Indian economy has led to free inflow of foreign direct investment (FDI) along with modern cutting edge technology, which increased the importance of private sector in Indian economy considerably. Previously, the Indian market were ruled by the government enterprises but the scene in Indian market changed as soon as the markets were opened for investments. This saw the rise of the Indian private sector companies, which prioritized customer's need and speedy service. This further fueled competition amongst same industry players and even in government organizations. The post 1990 era witnessed total investment in favor of Indian private sector. The investment quantum grew from 56% in the first half of 1990 to 71 % in the second half of 1990. This trend of investment continued for over a considerable period of time. These investments were especially made in sector like financial services, transport and social services. The late 1990s and the period thereafter witnessed investments in sector like manufacturing, infrastructure, agriculture products and most importantly in Information technology and telecommunication. The present trend shows a marked increase in investment in areas covering pharmaceutical, biotechnology, semiconductor, contract research and product research and development. The importance of private sector in Indian economy has been very commendable in generating employment and thus eliminating poverty. Further, it also effected the following Increased quality of life Increased access to essential items Increased production opportunities Lowered prices of essential items Increased value of human capital Improved social life of the middle class Indian Decreased the percentage of people living below the poverty line in India Changed the age old perception of poor agriculture based country to a rising manufacturing based country Effected increased research and development activity and spending Effected better higher education facilities especially in technical fields Ensured fair competition amongst market players Dissolved the concept of monopoly and thus neutralized market manipulation practices The importance of private sector in Indian economy can be witnessed from the tremendous growth of Indian BPOs, Indian software companies, Indian private banks and financial service companies. The manufacturing industry of India is flooded with private Indian companies and in fact they dominate the said industry. Manufacturing companies covering sectors like automobile, chemicals, textiles, agri-foods, computer hardware, telecommunication equipment, and petrochemical products were the main driver of growth.

The key challenges from tax and regulatory perspective are summarised below: Tax and Regulatory Challenges Considering the complexities involved. products to be developed on the land. that out of the total US $ 15 billion KPO service business around US $ 12 billion of business would be outsourced to India by the end of 2010. opening up FDI for the sector and increased corporatization. Each model offers its unique challenges and its implications also differ variedly. JDA concept encompasses complex interplay between the parties involved. etc. the complexities have also increased due to the use of JDA model in newer opportunities of Redevelopment projects. these tax positions are subject to challenge from revenue authorities and we are observing significant litigation on some of the issues common to any JDA. The point of transfer is a matter of debate i.e. The key feature of JDA is that the land owner contributes land and developer undertakes the responsibility of obtaining approvals. The KPO sector is engaged in delivering knowledge based high-end services to clients. Key tax and regulatory challenges faced by the land owner and developers are highlighted below: In the hands of land owner  The land parted by the land owner. Slum Rehabilitation projects. JDA model is structured. Certainly. consideration is discharged in the form of upfront payment. By its very nature. Joint Development Arrangement – gaining importance and posing significant challenges Introduction The Joint Development Arrangement (JDA). stamp duty and accounting perspective. financial risks undertaken. This conversion is often attempted to be disregarded by the revenue authorities. Further. roles and responsibilities undertaken by each participant.) or eventual sale of built-up area received by the land owner. Further. Given these commercial. It is estimated. Many a times. JDA concept has also evolved and gained importance. regulatory and tax facets of the JDA various innovative JDA models are being structured.e Specific POA and General POA are executed by land owner in favor of the developer. JDA model poses various challenges from tax (direct and indirect). cash or built-up area or share in revenue / profits. whether at the time of entering into a JDA or handing over of possession or receipt of consideration (i. The land owner expects much higher consideration in return for providing development rights to the developer. There is no uniform principle or guideline for determining point of accrual of capital gains (if land is capital asset) and taxability of income in the hands of land owner. this issue is quite relevant. whether the land owner by parting with the land under the JDA is engaging himself in the business of real estate is also relevant question and is dependent upon the specific facts. whether constitutes a stock in trade or capital asset? Since the scheme of taxability is different for business income and capital gains. Typically.e. As such. Matter gets further complicated when varied forms of Power of Attorney (POA) i. With the evolution of the sector.  . as a business model has been in vogue for a couple of years in the real estate sector. sharing of gross revenue. different tax positions (basis the specific facts) are adopted. in practice we have observed conversion of capital asset into stock in trade before participation by the land owner into a JDA to achieve tax efficiency and defer the incidence of taxation on transfer of development rights in the land. Depending upon various factors such as land prices. launching and marketing the project with its financial resources. sharing of constructed area or a combination thereof. property development.The Indian BPO sector is more concentrated with rendering services to overseas clients.

it is generally said that tax cannot be driving the business. Basis of computation of consideration received in the form of built-up area or sharing of revenue/ profits is again a disputed area. the developer too faces challenges namely what should be the cost of development right that he should claim while computing business income over the life cycle of the project.   In the hands of land owner  JDA poses another important challenge from the service tax regime. While. In case of area sharing without consideration being capped. In other words. This consequently impacts the quantum of taxability in the hands of the land owner. Therefore. If JDA is treated as an AOP. which makes the arrangement tax inefficient for the parties to the JDA.  In the hands of the Developer  Manner in which JDA is structured also exposes parties to Association of Persons (AOP) Exposure. the value on which tax would have to be deducted is also unclear. whether rights in land are being transferred or land itself is being transferred needs to be determined. The changes proposed in the Finance Bill 2012 have further complicated the subject of levy of service tax given the introduction of negative list. Further. Union Budget 2012 has proposed a new withholding tax provision on the sale of immoveable property. Accounting of construction cost for the built-up area to be provided to the land owner or share of revenue / profit to the land owner is also quite complex and different parties adopt different accounting principles    Summing Up While there exist tax and regulatory challenges. the land owner could be exposed to significant taxation as the revenue authorities could apply the valuation rules as deemed fit in the absence of any specific rules. Whether the JDA per se is subject to service tax or not a moot question. Further. whether service tax or VAT is applicable on the basis that land owner is appointing developer for construction of its share is another tricky issue. it is extremely important that the parties should undertake efficient preplanning and structuring the JDA post evaluating all possible tax and regulatory aspects. Applicability of stamp duty on JDA and provisions of section 50C of the Income-tax Act is another challenge. there are various other downsides of being taxed as AOP. Further. business realities and commercial advantages / necessities would require parties to adopt varied JDA models depending upon commercial aspects. Two more important proposals in the Finance Bill 2012 namely GAAR and domestic Transfer Pricing provision would significantly impact the JDA structuring especially when the arrangement is entered into between the related entities. Land assembly . it would be taxed as a separate entity. In case of area sharing. complexities surrounding JDA are also bound to increase with parties adopting more innovative and varied forms of JDAs. The challenge which arises is whether withholding tax would be applicable to JDA. but in today’s time tax cost cannot be ignored and all possibilities of optimizing tax cost should be evaluated. in cases where the land owner receives built-up area. Further.

(more generally) buildings or housing in general. from occupiers. Also: the business of real estate. immovable property of this nature.The process of forming a single site from a number of lands. This will include acquisition of individual interest and the eventual development or redevelopment. an interest vested in this. Real estate is "Property consisting of land and the buildings on it. along with its natural resources such as crops. buildings or housing. or renting land. when required. (also) an item of real property. or water. selling. removal or discharge of any restrictive covenants or other encumbrances and obtaining physical possession. the profession of buying." . minerals. usually for eventual development or redevelopment.