GST on Joint Development Agreements (JDAs)

Key stages of JDA:

1.Transfer of Development Rights (“DR”) by landowner to developer – It is construed as Transfer of Land by landowner to the developer. Oopss!! No GST. Khel Khatam! This is where the case of Prahitha Constructions (P) ltd revolved. The transfer of DR is not construed to be transfer of land rather it is giving the possession to the developer to enter the land and start development. (P.S. A wedding can crash without an invitation, but a building project cannot start without access rights!)

2. Provision of Construction services by the developer to the landowner – This constitutes supply of services under GST which is chargeable to tax as discussed further.

3. Hurray.. Sale of Flats by the developer or landowner to the buyers – Taxability here depends on the timing—whether the sale occurs before or after the receipt of the Completion Certificate (CC) or the First Occupancy Certificate (OC), whichever is earlier.

GST Taxability at Different Stages:

1.Transfer of DRs. – While it is clear that Transfer of DRs are subject to tax under GST. Let’s understand the taxability of the same

For any supply to be charged to tax under GST, one of the basic requirements of a transaction is consideration. Have you ever noticed a developer give away money for transfer of DRs, it’s a very rare happening in this universe. But then how is GST being charged. Though there is no flow of money from the developer to the landowner, there is still a flow of consideration in the form of construction services from developer. This may be termed as a Barter and thus, rightly attracts GST.

 1.1. Time of Supply of TDR: Vide Notification 06/2019- Central Tax (Rate), the time of supply of transfer of DRs was deferred to the time period in which the date of issuance of the CC or OC, whichever is earlier, falls.

 1.2. Liability to discharge tax: The person liable to pay tax shall be the recipient i.e., the developer under RCM pursuant to NN 04/2019- CT(R) at the rate of 18% (9% CGST and 9% SGST) under HSN 9972.

 1.3. Value of Supply: As mentioned earlier since it is a sort of Barter transaction between the landowner and developer, the value of supply in such a case shall be deemed to be equal to the value of similar apartments charged from the independent buyers nearest to the date such DRs is transferred.

 1.4. Exemptions: Developer shall pay tax under RCM on TDR only to the extent it is attributable to residential units un-booked on the date of issuance of CC. Additionally, the GST payable on TDR in a residential project is restricted to 1% or 5% of value of units remaining un-booked in the hands of developer alone.

2. Provision of Construction Services by developer to landowner – Vide Notification No. 6/2019 CT (R) the time of supply for provision of construction service was deferred to tax period in which the date of issuance of CC or OC whichever is earlier, falls. Further, the value of supply shall be equal to the value of similar apartments charged from the independent buyers nearest to the date such DR is transferred less the value of land (1/3rd presumed). Rate of tax shall be in accordance with NN 03/2019- CT(R) (described in detail in Annexure 1).

3. Sale of units to the buyer – The time of supply will be determined in accordance with Section 13 of the Act. In this particular case, the liability to pay GST would arise either at the time of completion of a milestone or at the time of receipt of advance, whichever is earlier. The value of supply would be the transaction value charged to the end customer. Further, standard deduction of 1/3rd shall be provided for undivided share of land. Rate of tax shall be in accordance with NN 03/2019- CT(R) (described in detail in Annexure 1)

Annexure 1  

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Disclaimer: The views expressed are based on a limited interpretation of applicable provisions and should not be considered as a legal opinion. Comments, feedback, and alternative views are welcome.