A joint development agreement is an agreement between a land owner and a real estate developer to construct new projects. Two types of JDA are common: Area Sharing JDA and Revenue Sharing JDA. In a JDA the capital, construction and legal work is carried out by the builder whereas the land is provided by the land owner.

The question before us is about:

1. Type of transactions and its taxability,

2. Time of supply and

3. Value of supply of services in GST regime.

Transactions in JDA & GST Treatment:

1. Land owner to Developer: Transfer of development rights by Land owner to developer. It attracts GST at the time of supply mentioned hereunder. It is a continuous supply of services.

2. Developer to Land Owner: Developer provides construction service to Land owner over a period [Applicable in Area Sharing JDA which is outside the scope of on-going discussion]

3. Developer to End Customer: When an under construction property is sold, GST is chargeable thereon. This too is a continuous supply of services.

Continuous Supply of Services:

It is also relevant to refer to the following definition of “continuous supply of service” under Section 2 (33) of the Act and Section 31 (5) dealing with issue of invoices.

As per Section 2(33), “continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify.

Section 31(5) states that in case of continuous supply of services, —

(a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment;

(b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment;

(c) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event.

Time of Supply:

The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of Section 13.

The time of supply of services shall be the earlier of the following dates:-

  • The date of issuing invoice (or the last day by which invoice should have been issued)
  • The date of receipt of payment; whichever is earlier

Time of Supply in case of JDA:

Case 1: When consideration is given entirely in kind [Area Sharing]: Time of Supply is the time when possession is transferred or area is demarcated as per Notification No. 4/2018- Central Tax (Rate).

Case 2: When consideration is paid entirely in cash [Revenue Sharing]: Time of supply is as the time when invoice is raised or payment is made, whichever is earlier.

Notification No. 4/2018- Central Tax (Rate) dated 25th January, 2018 clarifies certain aspects of the said arrangement. It specifies that—

(a) registered persons who supply development rights to a developer, builder, construction company or any other registered person against consideration, wholly or partly, in the form of construction service of complex, building or civil structure; and [Landowner]

(b) registered persons who supply construction service of complex, building or civil structure to supplier of development rights against consideration, wholly or partly, in the form of transfer of development rights [Real Estate Developer]

are liable to pay tax on supply of the said services at the time of supply which shall arise at the time when the said developer, builder, construction company or any other registered person, as the case may be, transfers possession or the right in the constructed complex, building or civil structure, to the person supplying the development rights by entering into a conveyance deed or similar instrument (for example allotment letter). In simple words, the time of supply is the time when either the possession is transferred or the rightful area is demarcated.

Conclusion:

The above provisions define the time of supply and time of raising the invoice in the relevant case. The service being provided by the builder to the final buyers is a continuous supply of services and that provided by the landowner to the builder is also continuous supply of services.

As per the provisions of the Act, the given case of revenue sharing JDA falls under clause (a) of sub-section (5) of section 31 where the due date of payment being ascertainable, shall be deemed to be the due date of raising of invoice. As per Section 31 (3), this date is considered to be the time limit for raising invoice.

After ascertainment of time limit of raising invoice, the time of supply can be understood. Section 13 as already mentioned above corresponds to the time of supply in case of services.

Value of supply:

The value of supply shall be determined using Valuation of Supply Rules. Reference has to be made to Section 15 of Central Goods & Services Tax Act, 2017. Valuation should be based upon the actual transaction value or cash consideration received.

Tax Rate on a JDA:

18% tax is applicable on the development right given by the land owner to the developer.

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Author Bio

Qualification: CA in Practice
Company: Kedia Dhandharia & Co.
Location: Kolkata, West Bengal, IN
Member Since: 15 May 2018 | Total Posts: 1

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8 responses to “Applicability of GST on Joint Development Agreements (JDA)”

  1. RENGANATHAN K R says:

    we are four owners and the patta is in joint names only.
    we have entered into Joint development agreement with a promoters in June, 2017 for re-developing our property. The existing owners will get one each and the promoters will take 2 for his consideration .
    The work commenced in July 2017. The building is still under construction.
    now my queries are:
    1. what is the rate of interest of GST for JD Project.,
    2. who is to bear the GST ..either the Promoters or the owners.
    3. Whether UDS will have a say on GST?
    4 .Three owners will get larger carpet area and others owners will get lesser carpet area – the UDS is also calculated on this basis – is it correct?
    5.the medhod of calculating GST

  2. NANDAGOPAL SHENOY says:

    Sir,for land owner an out put tax is generated for transfer of development rights as per notification central tax (rate)- 4/2018 ,and he gets tax invoice from builder towards construction services for same amount simultaneously . whether this ITC is available for set off towards output tax to the land owner? if available then there is no net tax payable to both on same transaction. Am i right?

  3. Anand says:

    Hi Sir,
    Very useful article indeed !

    Just to clarify – can the transaction be taxed twice?- As providing Development rights in the hands of the Landowner and as providing Construction services in the hands of the Developer

    In case it is taxed only once, how to ascertain as to who (landowner or developer) is providing the service and has to pay GST.

  4. SANGEETA RAO says:

    Dear Sir,

    Your article is very useful..
    We are landowners entering into Development agreement with developers on Area sharing basis. I have few queries as follows:
    1) How & When GST apply on this transaction
    2) Whether GST be payable by us on alloting the development rights to the Developer and chargeable to Developer?
    3)Would GST be on value of entire land given for development? or on the value of the land component coming to the share of developer? if yes then at what rate & at which stage?
    (4) will it be applicable at the time of signing the DA? or on the completion of the building?
    And in case of Applicablity of GST to developer (1) GST applicable at what stage and at what rate?
    2) Will it be applicable on the cost of construction of the flats alloted to RNDC or otherwise?

  5. Sachin says:

    Hello Sir,

    Thank you for informative article on this topic.
    I am residing in USA and thinking about doing a JDA in which land will be provided by me, builder will do the construction activity and we both shall receive 50 percent of constructed property.
    This is for land I own in India. I would like to know if my below understanding is correct, if not kindly correct me:

    1. when I provide land to developer then developer will owe the GST tax to me. This will be on the value of the land.
    2. When Builder provides us the finished product (flats) we owe the GST tax to the developer. This will be on the construction cost for my 50 percent share. Here I will get abatement , reducing GST tax rate to 12 percent.
    3. When we sell the finished product we both will collect GST from the buyer of the flats.

    I contacted CBECMitra help over e-mail and their opinion was I will not attract any GST as there is no GST on immovable property. Kindly shed light on this aspect as well.

    Thank you for your time !
    Sachin

  6. Subrahmanyam says:

    Sir , good article on Joint development agreements.what about the impact of GST incase of jda agreement in respect of land development (i.e land acquired and developed as per layout approval and some plots are given to land owner)

  7. NIKUNJ BHANGARIA says:

    very well written article Sir. you made it easy to understand. Sir, could you please throw some more light on the valuation, time and rate of tax on services provided by the developer to the landowner? Also the tax implication on the underconstructed flats allotted by developer to landowner and then further sold by landowners to third parties ?

    • CA Manish Raj Dhandharia says:

      In an Area Sharing JDA the developer provides construction services to the landowner. The valuation of such a supply would depend on the open market value of the service. In a Revenue Sharing JDA the landowner’s service would be valued as equal to the amount of consideration received from the developer. The time of supply will be the same as mentioned above in the article. Tax rate of the landowner and well as developer’s service is 18%.

      Under constructed flats when sold by landowner to the consumer will attract 18% GST and an abatement for value of land amounting to 1/3rd of the total value would be available thereby reducing the effective tax rate to 12%.

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