GST implication on Joint Development Agreements in case of Residential Project – Intended for Sale: –
GST implications on Joint Development Agreements (JDAs) for residential projects involve multiple taxable supplies, including transfer of development rights (TDR), construction services, and sale of units. TDR supplied by the landowner to the developer is taxed under reverse charge, with liability arising at the time of completion certificate (CC), though exemption is available for units sold before CC. GST is payable only on unsold units, subject to a capped rate. Construction services provided by the developer to the landowner are also taxable, valued based on similar flats sold to independent buyers, with GST applicable at concessional rates without input tax credit. Sale of units to end customers attracts GST only before CC, with no tax on post-completion sales. The framework ensures no double taxation through valuation and timing rules. Overall, GST compliance in JDAs is complex, requiring careful valuation, classification, and timing to avoid disputes and ensure correct tax liability.
There are three types of Supplies Involved in a JDA Project
| S. No | Transaction | Supplier of service | Recipient of service |
| 1. | Transfer of development rights | Landowner | Promoter (Developer) |
| 2. | Provision of construction service | Promoter | Landowner |
| 3. | Sale of units to end customer | Promoter | Third-party |
| 4. | Sale of units to end customer | Landowner (only area share) | Third-party |
T1: Transfer of Development Rights – Residential (Area Share)
GST Implications
| S. No | Particulars | Details | Reference |
| 1. | Supplier of service | Landowner | |
| 2. | Person liable to pay tax | Developer – Promoter (RCM) | Notification No. 5/2019 Central Tax (Rate) |
| 3. | Time of supply | In a tax period not later than the tax period in which the date of issuance of OC/CC | Notification No. 6/2019 Central Tax (Rate) |
| 4. | Value of supply | Deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.
Exemption: GST on TDR exempted proportionate to the carpet area of units sold before OC/CC Upper cap: GST liability @1%/5% of value of unsold units as on the date of OC/CC (Please see note-1 below this table) |
Notification No. 4/2019 Central Tax (Rate) |
| 5. | Rate of tax | 18% under HSN code 9972 | Notification No. 11/2017 Central Tax (Rate) |
| 6. | Input tax credit | ITC not available in the hands of the developer-promoter | Notification No. 3/2019 Central Tax (Rate) |
Note :1 (For clear understanding of exemption and taxable portion)
1. Legal Background (in brief)
- Service involved: Transfer of Development Rights (TDR) / FSI
- Supplier: Landowner
- Recipient: Promoter / Developer
- Tax mechanism: Reverse Charge Mechanism (RCM)
- Relevant Notifications:
- Notif. 04/2019-CT (Rate) – Exemption on TDR for residential apartments
- Notif. 05/2019-CT (Rate) – RCM on TDR
- Time of tax payment: Completion Certificate (CC) / First occupation (earlier)2.
2. Core Principle of Taxability
What is exempt?
TDR/FSI attributable to booked residential apartments
To the extent apartments are sold before CC
What is taxable?
TDR/FSI attributable to unbooked residential apartments at CC
Subject to rate cap (0.5% / 2.5%)
3. Comprehensive Numerical Example
Project Details
| Particulars | Details |
| Total project carpet area | 10,000 sq. mtr |
| Residential carpet area | 8,000 sq. mtr |
| Commercial carpet area | 2,000 sq. mtr |
| Type of residential apartments | Other than affordable |
| Value of TDR / FSI | ₹10 crore |
| Applicable GST rate on TDR | 18% (RCM) |
4. Step-1: Total GST on TDR (Before Exemption)
GST on TDR = ₹10 crore × 18%
= ₹1.80 crore
5. Step-2: GST Attributable to Residential Apartments
Formula as per notification:
GST on residential portion
= Total GST × (Residential carpet area ÷ Total carpet area)
= ₹1.80 crore × (8,000 ÷ 10,000)
= ₹1.44 crore
This ₹1.44 crore is eligible for exemption, subject to booking status.
6. Step-3: Identify Unbooked Residential Area at CC
Assume at the time of Completion Certificate:
| Status | Carpet Area |
| Booked residential apartments | 6,000 sq. mtr |
| Unbooked residential apartments | 2,000 sq. mtr |
| Total residential area | 8,000 sq. mtr |
7. Step-4: GST Payable on Unbooked Residential Apartments
GST payable
= GST on residential portion × (Unbooked area ÷ Total residential area)
= ₹1.44 crore × (2,000 ÷ 8,000)
= ₹36 lakh
8. Step-5: Apply Maximum Cap
For non-affordable residential apartments, GST payable cannot exceed 2.5% of value.
Assume:
- Value of unbooked residential apartments = ₹20 crore
Maximum GST allowed = ₹20 crore × 2.5%
= ₹50 lakh
Calculated GST = ₹36 lakh
Cap limit = ₹50 lakh
GST payable = ₹36 lakh (lower of the two)
9. Final GST Liability Summary
| Particulars | Amount |
| Total GST on TDR | ₹1.80 crore |
| Exempt portion (booked residential + commercial adjustment) | ₹1.44 crore – taxable portion |
| GST payable on unbooked residential units (RCM) | ₹36 lakh |
| Time of payment | CC / First occupation |
| Who pays | Developer (RCM) |
T-2: Provision of Construction Services – Residential (Area Share)
GST Implications
| S. No | Particulars | Details | Reference |
| 1. | Supplier of service | Developer – Promoter | |
| 2. | Person liable to pay tax | Developer – Promoter | |
| 3. | Time of supply | In a tax period not later than the tax period in which the date of issuance of OC/CC | Notification No. 6/2019 Central Tax (Rate) |
| 4. | Value of supply | Deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter. | Notification No. 11/2017 read with Notification No. 3/2019 Central Tax (Rate) |
| 5. | Rate of tax | 1.5%/7.5% as the case may under HSN code 9954 (Please see note-2 on end of the page) | Notification No. 11/2017 read with Notification No. 3/2019 Central Tax (Rate) |
| 6. | Input tax credit | ITC on construction cost not available in the hands of the developer. However, Landowner can take ITC of GST charged by Developer | Notification No. 3/2019 Central Tax (Rate) |
T-3: Sale of Units to End Customer – Residential (Area Share)
GST Implications
| S.No | Particulars | Details | Reference |
| 1. | Supplier of service | Developer – Promoter/Landowner as the case may be | |
| 2. | Person liable to pay tax | Developer – Promoter/Landowner as the case may be | |
| 3. | Time of supply | Date of receipt of advance or as per the milestones agreed in the agreement to sell | Section 13 of CGST Act |
| 4. | Value of supply | Transaction value charged to the customer, less the value of land (1/3rd of total value). | Section 15 of CGST Act |
| 5. | Rate of tax | 1.5%/7.5% as the case may under HSN code 9954 (Please see note-2 on end of the page)
No GST on units sold after OC/CC |
Notification No. 11/2017 read with Notification No. 3/2019 Central Tax (Rate) |
| 6. | Input tax credit | ITC on construction cost not available in the hands of the developer
Landowner can utilize the ITC of the GST charged by the Developer on the construction services rendered to offset against the liability arising from the sale of units to end customers |
Notification No. 3/2019 Central Tax (Rate) |
GST Implications on Residential (Area Share v/s Revenue Share)
| Transaction | Particulars | Implication under Area share | Implication under revenue share |
| T-1: Transfer of development rights | a) Person liable to pay tax
b) Time of supply c) Value of supply d) Exemption e) Limitation |
a) Tax payable by developer under RCM
b) Tax may be remitted upto the date of OC/CC c) Deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter d)Exemption available proportionate to units sold prior to date of OC/CC e) GST on TDR limited to 1%/5% of the value of unsold units as on the date of OC/CC |
a) Tax payable by developer under RCM
b) Tax may be remitted upto the date of OC/CC c) Actual Revenue Share of sold units upto date of OC/CC + the estimated revenue share receivable on unsold units d) Exemption available proportionate to units sold prior to date of OC/CC e) GST on TDR limited to 1%/5% of the value of unsold units as on the date of OC/CC |
| T-2: Provision of construction services | a) Person liable to pay tax
b) Time of supply c) Value of supply |
a) Tax payable by developer
b) Tax may be remitted upto the date of OC/CC c) Value is deemed to be equal to the value of similar apartments nearest to the date on which such development rights or FSI is transferred |
No provision of construction services in a revenue share Joint Development Agreements |
Note :2 (For clear understanding of rate of tax)
GST Rate Structure for Affordable and Non-Affordable Residential Housing
(Gross Rate vs Effective Rate)
Under the Goods and Services Tax (GST) regime, construction of residential apartments is treated as a supply of construction service under Heading 9954 of Notification No. 11/2017 – Central Tax (Rate), as amended by Notification No. 3/2019 – Central Tax (Rate) with effect from 01 April 2019.
Post amendment, the Government introduced a new concessional rate regime for residential real estate projects, prescribing lower GST rates without input tax credit (ITC).
As per Notification No. 11/2017 read with Notification No. 3/2019, the applicable GST rates for construction of residential apartments are:
| Category of Residential Apartment | CGST | SGST | Total (Gross GST Rate) |
| Affordable Residential Housing | 0.75% | 0.75% | 1.5% |
| Other than Affordable Residential Housing | 3.75% | 3.75% | 7.5% |
Legal Provision
Paragraph 2 of Notification No. 11/2017– Central Tax (Rate) provides that:
Where the value of land or undivided share of land is not separately ascertainable, one-third of the total amount charged shall be deemed to be the value of land, and the remaining two-thirds shall be treated as the value of supply of construction service.
Key Points
- Sale of land is neither supply of goods nor supply of services
- GST is not leviable on land
- Deduction of 1/3rd value towards land is mandatory
- GST is levied only on 2/3rd of the total agreement value
Concept of Gross Rate vs Effective Rate
The GST rates of 1.5% and 7.5% are applied only on the taxable portion (i.e., 2/3rd value).
When the total GST payable is compared with the entire agreement value, the actual burden works out to a lower percentage, known as the effective GST rate.
| Category of Residential Apartment | Gross Rate | Taxable Portion | Efective GST Rate |
| Affordable Residential Housing | 1.5% | 2/3 of value | 1% |
| Other than Affordable Residential Housing | 7.5% | 2/3 of value | 5% |
Note :3 Is GST payable at both stages in a Joint Development Agreement (JDA)? (In case T1 and T2)
YES, both supplies are taxable, but GST is NOT payable twice on the same value at the same time due to deferred taxation and valuation mechanisms provided in law.
1. Under GST law, a JDA involves two distinct taxable supplies:
(A) Supply by Landowner → Developer
Nature of supply:
- Transfer of Development Rights (TDR) / FSI / long-term lease
- Treated as supply of service
(B) Supply by Developer → Landowner
Nature of supply:
- Construction of residential apartments / houses
- Treated as supply of construction service (Heading 9954)
2. Valuation of Supply under JDA for GST Purposes
Under a Joint Development Agreement, there are two independent taxable supplies, and valuation rules differ for each.
1. Value of Supply – Construction Service by Developer to Landowner
1.1 Nature of Supply
- Supply of construction service (residential apartments / houses)
- Consideration is non-monetary (i.e., development rights / land)
1.2 Applicable Valuation Rule
As per Rule 27 of CGST Rules, 2017 (consideration not wholly in money), read with Notification No. 11/2017:
The value of supply shall be the open market value (OMV) of such supply.
Practical Rule Prescribed by Notification
For JDA cases, the law provides a safe valuation mechanism:
Value of construction service = Value of similar flats sold to independent buyers nearest to the date of CC, reduced by land value (1/3rd).
1.3 Step-by-Step Valuation Method
1. Identify price of similar flats sold to outsiders
2. Take the price nearest to completion certificate date
3. Apply mandatory 1/3rd land deduction
4. Balance 2/3rd becomes taxable value
1.4 Numerical Illustration
Facts:
- Flats given to landowner: 10
- Sale price of similar flat to outsider: ₹75,00,000
- Category: Non-affordable residential
Computation
| Particulars | Amount (₹) |
| Gross value (10 × ₹75,00,000) | 7,50,00,000 |
| Less: Land value (1/3) | 2,50,00,000 |
| Taxable construction value (2/3) | 5,00,00,000 |
| GST @ 5% | 25,00,000 |
Value of supply = ₹5 crore
2. Value of Supply – Transfer of Development Rights (Landowner to Developer)
2.1 Nature of Supply
- Transfer of development rights / FSI
- Taxable under GST, but subject to special valuation and timing provisions
2.2 Applicable Valuation Rule
As per Notification No. 11/2017 read with Notification No. 4/2019 & 6/2019–CT (Rate):
Value of TDR supply = Value of construction service provided to landowner, attributable to unsold units as on CC date.
This creates valuation parity and avoids mismatch.
2.3 Step-by-Step Valuation Method
1. Determine total value of construction service provided to landowner
2. Identify unsold units as on Completion Certificate
3. Compute proportion of unsold units to total units
4. Apply this proportion to construction value to arrive at taxable TDR value
2.4 Numerical Illustration
Facts:
- Total flats in project: 50
- Flats sold before CC: 35
- Unsold flats at CC: 15
- Value of construction service to landowner: ₹5 crore
Computation
| Particulars | Amount |
| Unsold proportion | 15 ÷ 50 = 30% |
| Taxable TDR value | 30% × ₹5 crore = ₹1.50 crore |
| GST @ 18% (RCM) | ₹27 lakh |
Value of supply of TDR = ₹1.50 crore
- Why Valuation Differs in Both Cases
| Supply | Valuation Logic |
| Construction service | OMV of similar flats (Rule 27) |
| TDR | Linked to unsold portion to prevent double taxation |
| Time of valuation | Completion Certificate date |
| Objective | Tax only service portion |
TDS Treatment under Different JDA Models: –
Area Share Model
Nature of Consideration
- Landowner receives constructed flats / units
- No immediate cash payment
TDS Applicability- Section 194-IC applies
TDS Base: –Stamp Duty Value (SDV) of the constructed area handed over to landowner
Timing of TDS
- At the time of:
- Handing over possession of constructed area, or
- Issuance of Completion certificate whichever is earlier
Revenue Share Model
Nature of Consideration
- Landowner receives cash / share of sale proceeds
TDS Applicability: –Section 194-IC applies
TDS Base: – Actual monetary consideration paid or credited
Timing of TDS: –At the time of payment or credit to landowner
Mixed Model (Area + Revenue Share)
- TDS @ 10% on:
- SDV of constructed area plus
- Monetary consideration paid
Section 45(5A) – Capital Gains in case of Joint Development Agreement (JDA): –
Section 45(5A) provides a special mechanism for taxing capital gains arising to individuals and HUFs under a Joint Development Agreement by deferring taxation to the year of completion certificate and deeming stamp duty value of the landowner’s share plus cash consideration as full value of consideration.
Important Proviso – When Section 45(5A) Does NOT Apply
If the landowner:
- Transfers his share in the project (e.g., sells flats received under JDA)
- Before the date of Completion Certificate
Then:
- Capital gains are taxable in the year of such transfer
- Section 45(5A) benefit is lost
- Normal provisions of capital gains apply
Author Bio
Madam,
The case of Prahitha Contruction Pvt. Ltd. v. Union of India & Ors. (2024) 42 J.K.Jain’s GST & VR 195(Tel) is pending in Supreme Court, to decide the taxability of JDA.
C A Om PrakashJain s/o J.K.Jain , Jaipur
TEL 9414300730/0141-3584043