Summary: A Joint Development Agreement (JDA) is a contract between a landowner and a developer for real estate projects, categorized as either area-sharing or revenue-sharing. Under GST, three main transactions occur: the transfer of development rights (taxable under reverse charge if the landowner is unregistered), construction services by the developer (taxed under forward charge), and the sale of developed units. From April 1, 2019, new GST rates apply, with affordable housing taxed at 1% (without ITC), residential units at 5% (without ITC), and commercial units in real estate projects at 12% (with ITC). Tax on the transfer of development rights is exempt for under-construction residential units but taxable for unsold flats at project completion. The developer pays GST under reverse charge, with ITC eligibility varying based on project type. Accounting for JDAs requires tracking development rights as business expenses, recognizing construction costs as project expenditures, and adhering to IND AS 115 for revenue recognition.
Definition of JDA
A Joint Development Agreement (JDA) is a contractual arrangement between a real estate developer and a landowner, wherein the developer is authorized to construct projects on the land provided by the landowner. Under this agreement, the landowner contributes the land, while the developer oversees the construction activities. Upon completion of the project, the developer allocates the agreed-upon area or value to the landowner based on their respective shares in the overall project.
JDAs can be classified into two primary categories:
1. Area Sharing Joint Development Agreement
2. Revenue Sharing Joint Development Agreement
*Types of Transactions and GST Application
Three types of transactions typically occur within a JDA, each subject to GST as follows:
1. When the landowner transfers development rights to the developer (GST to be paid under Reverse Charge Mechanism (RCM) by the developer if the landowner is unregistered).
2. When the developer provides construction services to the landowner (GST to be paid by the developer under forward charge).
3. Sale of the developed area by either the developer or the landowner.
Real Estate Sector in GST Regime
| Period | Tax Rates |
| 01/07/2017 to 31/03/2019 (Old Scheme) | GST on Sale of under-construction affordable units: 8% with Input Tax Credit (ITC) on inputs, input services, and capital goods. <br> GST on Sale of under-construction units (residential & commercial): 12% with ITC on inputs, input services, and capital goods. |
| 01/04/2019 Onwards (New Scheme) | GST on Sale of under-construction affordable units: 1% without ITC. <br> GST on Sale of under-construction residential units: 5% without ITC. <br> GST on Sale of under-construction commercial units in Residential Real Estate Project (RREP): 5% without ITC. <br> GST on Sale of under-construction commercial units in Real Estate Project (REP) or exclusive commercial projects: 12% with ITC. |
RREP Project: Where commercial units constitute up to 15% of the total project.
**ITC is permitted only in commercial projects, and to avail of the ITC, 80% of the value of inputs and input services must be sourced from registered persons; otherwise, GST is payable under RCM on purchases from unregistered persons, such as 18% on inputs (excluding cement) and for input services.*
GST is applicable under RCM for the following procurements from unregistered persons (regardless of any limit):
– Capital Goods at the applicable rate
– 28% on cement
Builders are required to maintain project-wise accounts of inward supplies from both registered and unregistered suppliers to monitor the 80% limit.
Transfer of Development Rights (DR)/Transferable Development Rights (TDR)/Floor Space Index (FSI)/Lease on or after 01/04/2019 for Construction of Residential Apartments
Taxability:
The transfer of DR/TDR/FSI/Lease utilized for the sale of under-construction residential units is exempt. It becomes taxable to the extent of unsold residential flats as of the date of issuance of the Completion Certificate or First Occupation, whichever occurs first.
Due Date for Payment of Tax:
Payment must be made no later than the tax period in which the completion certificate is issued or first occupation occurs, whichever is earlier.
Person Liable to Pay Tax:
Promoter-Developer (to be paid under RCM).
ITC Credit on Tax Paid Under RCM by Developer on or after 01/04/2019:
– New Scheme: ITC is not eligible.
– Old Scheme: ITC is eligible.
Tax on Transfer of DR/TDR/FSI/Lease Pertaining to Unsold Flats Upon Completion of Project:
The tax is calculated as the lower of:
– 18% on the value of DR/TDR/FSI in proportion to the carpet area of unsold flats relative to the total carpet area of residential flats; or
– 1% or 5% of the value of such unsold flats.(1% for affordable housing)
Valuation of DR/TDR/FSI/Lease:
– Outright Purchase: Value of monetary consideration paid for outright purchase.
– Revenue Sharing: Monetary consideration paid to the landowner as revenue share.
– Area Sharing: Value of similar apartments charged by the promoter from independent buyers nearest to the date of transfer of DR/TDR/FSI.
Transfer of DR/TDR/FSI/Lease on or after 01/04/2019 for Construction of Commercial Apartments
Taxability:
Taxable.
Due Date for Payment of Tax:
Payment must be made no later than the tax period in which the completion certificate is issued or first occupation occurs, whichever is earlier.
Person Liable to Pay Tax:
Promoter-Developer (to be paid under RCM).
Tax Rate:
18% on the value of DR/TDR/FSI/Lease.
ITC Credit of Tax Paid Under RCM by the Developer:
– For exclusive commercial projects: ITC is eligible.
– For REP: ITC attributable to the commercial portion can be claimed.
– For RREP (with commercial portion less than 15%): ITC is not eligible for developers opting for the new scheme; however, it is eligible for developers opting for the old scheme.
GST on Construction Services Provided by the Developer to the Landowner:
The construction of the owner’s apartments is classified as a service provided by the developer to the landowner, which is subject to GST. The developer is responsible for paying tax on the owner’s area at the time of issuance of the completion certificate or first occupation, whichever occurs first. GST is applicable on the total amount charged for similar apartments in the project to independent buyers nearest to the date of transfer of development rights. The developer is liable for GST on the sale of under-construction apartments/units at rates of 5%, 1%, or 12%.
Accounting Treatment in Joint Development Agreements
Payments made towards development rights (DR) or land acquisition to the landowner are considered business expenditures and can be deducted against the sale proceeds of the developed area. If not sold by the year-end, these amounts will be classified as Stock-In-Trade and reflected in the financial statements as carrying costs.
In cases where payment for development rights is deferred (such as in gross revenue sharing arrangements), the net receipts will be taxed in the respective years of sale and/or realization. The carrying cost of the stock will be represented by the direct expenditures incurred, excluding the notional cost of acquiring DR.
For accounting purposes, the costs incurred by the developer for the construction of the entire project are treated as expenses related to generating revenue from sales to the developer’s customers. In the case of area sharing for the landowner, no separate accounting is required, while revenue sharing is accounted for through the balance sheet. Detailed guidance is available under IND AS 115.
For real estate projects executed through JDAs that are not classified as jointly controlled operations, where the landowner provides land and the developer undertakes development work, the revenue from the development and transfer of the agreed share of constructed area or revenue proceeds in exchange for development rights is accounted for on a gross basis.
The gross accounting at fair value for the asset in the form of land inventory (subsequently recognized as land cost over time based on the stage of project completion) and the corresponding liability to the landowner (subsequently recognized as revenue over time based on the stage of project completion) may be recorded upon signing the JDA. However, in practice, accounting is typically performed at the project launch, considering the time gap between signing the JDA and the actual project launch.
The developer’s commitments under the JDA, which are executed and pending completion of performance obligations, are disclosed in the financial statements.
The fair value for gross accounting of the JDA is determined by the market value of the land received by the developer or based on the standalone selling price of the share of constructed property provided by the developer. If this cannot be reliably obtained, the fair value is measured based on the fair value of construction services rendered by the developer to the landowner.
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