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.
Author Bio
Hello, i am Builder at Indore (M.P.) my question is if i am doing an joint agreement for colony development, where i would be selling just plots. i won’t be constructing any building or complex on that land. I would be just making the slicing of land (after permission from Authorities) and would be making roads, putting water and sewerage line and doing landscaping. whether the Builder firm be liable to pay GST on that.
Hello, i am Builder at Indore (M.P.) my question is if i am doing an joint agreement for colony development, where i would be selling just plots. i won’t be constructing any building or complex on that land. I would be just making the slicing of land (after permission from Authorities) and would be making roads, putting water and sewerage line and doing landscaping. whether the Builder firm be liable to pay GST on that.
JV Agreement with Land owner and Developer Land owner handover the land to developer and 50% constructed house given to land owner with out any consideration ( Land cost) . This transaction applicable GST or not? If applicable what is the rate of tax? What value to be taxed no consideration received from the land owner developer. Any restriction applicable taking input
MY QUERY IS
JV ENTERED WITH Developer and land owner
as per the JV developer construct the apartment and 50% apartment given to Land owner no consideration will be receive from land owner to developer. Any tax applicability under GST if applicable means which value tax will be applicable please clarify
I (landowner) had done a JDA with builder on may 2016 with a registered agreement to make flats and in return he will give me completed my share of flats. My project is still under construction. Now the developer is saying that I have to pay him gst on his service @ 18%.
So my question is what I should do as my agreement was done at the time of service tax (which is the liability of builder) but now he in return demands me gst and which is a heavy amount and I am not in a position to pay that much. What should be the real advice and if I have to pay the gst then what is the exact calculation of 18%. Pls advice.
Hi I have a question. I have done a builder agreement in May 2016 for construction of flats and we divided the flats. Still the project is under construction. Now builder is saying that I have to pay him gst on the services he is giving to me on the portion of flats he is giving to me and has given me a big calculation. What should I do
If we do joint venture on stock sharing basis by 50:50 basis then we are paying gst of complete construction expenses of 100% and stock will delivered to landlord after completion with Occupancy certificate then gst is applicable on stocks of landowner or not .if applicable then on what cost it is payable
A small company as per section 2(85) of the Companie Act entered in to an agreement with Developer for construction and marketing of residential and commercial flats/spaces. The entire cost of development and marketing will be borne by Developer. In cosideration land ownner will get his share of revenue based on a certain percentage of sale value of flats/commercial spaces.
whether GsT will applicable on land owner?
Regrds
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
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?
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.
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?
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
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)
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 ?