Follow Us :

CA Rama Krishna Sangu

CA Rama Krishna Sangu

In view of recent clarification by the Central Board of Indirect Taxes through its Circular vide No. 177/09/2022 TRU dated 3rd August 2022, there is once again buzz in the real estate sector about the GST implications on development and sale of plots.

From the very beginning of GST era, there is a lot of confusion on GST implications on development and sale of land being plots. Notification no 3/2019 CTR has put to an end many confusions in so far as construction and selling of residential or commercial apartments. However, similar clarity is missing for development and sale of plots.

Moreover, in many parts of the country, show cause notices have been issued on developers of land to pay GST on their activity.

In view of the above, the latest Circular No 177 has gained lot of importance as it tries to clarify the confusion though not fully.

This article aims to discuss the GST implications on various types of activities involved in land development.

The following types of transactions takes place, in general, in Development and Sale of Plots:

A. Developer owns the land

a. Sale of plots to the customers;

B. Developers enters a Joint Development Agreement with a Land Owner

a. Transfer of Development Rights by the Land Owner to Developer;

b. Sale of plots by the Developer to his customers (Developer share);

c. Development of land owner share and handing over to Land Owner;

d. Sale of plots by Land Owner to his customers (Land Owner Share).

A. Whether sale of plots to buyers thereof chargeable to GST – both the cases of Own Land and Joint Development Agreement?

  • When a developer starts development of a land into plotting and other development activities like electricity, drainage, water facilities, parks, club house etc., he may enter into sale agreements with the prospective buyers either before commencement of such development or during the course of such development or after development is completed.
  • Circular 177 cited above, clarifies that “As per S.No. (5) of Schedule III of the Central Goods and Service Tax Act, 2017 (CGST Act) sale of land is neither supply of goods nor a supply of service”. The S. No 5 of Schedule III reads as below:

5. Sale of land and, subject to clause (b) of Paragraph 5 of Schedule II, sale of building.

  • Para 5 of Schedule II deals with GST on construction and selling of apartments when sold before the building gets occupancy certificate. The provisions of Para 5 of Schedule II are different from S.No. 5 of the Schedule III. Hence sale of land whether before development or after development it remains land, and in the absence of specific provisions similar to Para 5 of Schedule II the same shall not be subject to GST.
  • Accordingly, the above-mentioned circular provides the following clarification: Land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of land and is covered by Sr. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST.
  • Hence it can be concluded that sale of plots by a developer to his customers whether before development, or during the course of development or after development shall be exempt from GST.
  • Summary – Whether it is a case of own land or JDA case, the plots sold by the developer to his customers are not chargeable to GST in terms of the said Circular.

B. Cases where a project is developed under Joint Development Agreement:

The next crucial area which is not addressed by the Circular is –

  • Whether Transfer of Development Rights by a land owner under a Joint Development Agreement would be liable to GST? And
  • Whether development services provided by developer to the land owner towards land owner share under JDA would be liable to GST?

Let’s take up one by one –

1. Whether Transfer of Development Rights by owner of the land under JDA to the developer attracts GST?

  • For this we may refer Notification no. 13/2017 CTR (Reverse Charge Notification) S.No. 5B which provides that services supplied by any person by way of transfer of development rights or FSI for construction of a PROJECT by a promoter, the GST thereon shall be paid by the promoter under Reverse Charge Mechanism (RCM).
  • The explanation to the Notification no. 13/2017 CTR provides definition of the term “Project”.
  • Clause (K) of the explanation provides that the term project shall mean a Real Estate Project or a Residential Real Estate Project.
  • Clause (I) of the explanation provides that the term Real Estate Project shall have the same meaning assigned to it in clause (zn) of Section 2 of the Real Estate (Regulation and Development) Act, 2016.
  • Section 2 (zn) of the RERA Act, 2016 defines the term Real Estate Project. The definition is defined in a exhaustive manner starting with the words “means”. The definition contains the development of land into plots

Therefore, to sum up, transfer of development rights for construction of a project attracts RCM and project includes land development and therefore, it might be inferred that, in the case of transfer of development rights for development of land into plots may attract GST under RCM and the developer may be liable to pay GST.

Though there is no specific mention about the taxation of TDR on land in any notification etc., department may interpret in the above-mentioned manner and propose GST on TDR in the hands of the builder under RCM.

It is pertinent to mention at this juncture that the exemption available for transfer of development rights under Notification no 12/2017 is only for when it is for construction and sale of residential apartments and hence not applicable to development of plots even if it is for residential purposes.

2. The Second question is whether the development services provided by the developer to the land owner under a JDA attracts GST?

  • It is similar to that of payment of GST on land owner share of flats by the builder of apartments in terms of Notification No 3/2019 CTR based on value of first flat sold by the builder to a third party nearest to the date of JDA;
  • The clarification as per Circular No 177 provides that sale of land whether before development or after development shall not attract GST.
  • However, under a JDA there is no sale of land by the developer to the land owner, in fact the land is owned by the land owner and hence the question of sale of land by the developer to land owner does not arise.
  • Then what the developer is doing for land owner might be termed as aa service.
  • Section 2 (102) of CGST Act defines the term service to mean –

“Anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged”

GST on Development and Sale of Plots

Therefore, the development of land is an activity being done by one person called developer to another person called land owner and the consideration for such an activity is development rights being granted by land owner to the developer. Hence, it appears that development services being provided by developer to the land owner may attract GST in the absence of any specific clarification from the Board.

C. Whether sale of developed or under developed plots by land owner liable to GST?

In view of the above mentioned circular, the sale of land whether before or after development is not liable to GST whether it is sold by developer or any other person and hence the sale of plots by land owner of his share, shall not attract GST.

D. Whether the developer can avail ITC in respect of goods and services used for development of plots?

As per the provisions of Section 16 read with the provisions of Section 17, so long as the goods or services are used in the course or furtherance of business and it is not exclusively used for providing exempted services, the taxpayer shall be entitled to claim ITC subject to Section 17 (5).

  • In the instant case of development of plots, it is opined that (in the previous paragraphs) sale of plots by developer to his customers are exempt from GST whereas in the case of JDA, development services provided to land owner and transfer of development rights are taxable in the hands of the developer. Therefore, the developer shall be entitled to claim ITC in order to discharge GST payable.

(The article and opinions thereof are purely interpretation by the author of the law, rules, notifications and clarification issued by the Government from time to time. It should not construe any professional advice and we shall not be liable for any actions taken based on above clarification).

Author Bio

My Published Posts

Can GST Credit Notes Be Issued to Unregistered Dealers Under Section 34? View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.


  1. ManuGowda B G says:

    What if in case – Land owners develops the land (without having any developer or not entered into JDA) and sold to his customers

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
May 2024