1. What is TDR ?
Transfer of Development Rights (TDR) is a voluntary, incentive- based program that allows landowners to sell development rights from their land to a developer or other interested party who then can use these rights to increase the density of development at another designated location.
Taxability of TDR’s w.e.f 01-04-2009.
Notifications relevant are
2. As per Notification No.04/2019-CT(Rate)
- Service by way of transfer of development rights (herein refer TDR) or Floor Space Index (FSI) (including additional FSI)
- On or after 1st April, 2019 for construction of residential apartments by a landowner in a project, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
- The amount of GST exemption available for construction of residential apartments under this notification shall be calculated as under:
i. GST payable on TDR or FSI x Carpet area of the residential apartments
Total carpet area
- The above exemption is available to the land owner only when the promoter paid the tax on Reverse Charge Mechanism on the residential projects which remain un-booked on the date of issuance of completion certificate or first occupation, whichever is earlier.
- The amount payable by the promoter is as under (only applies to residential projects)
** GST on TDR or FSI x Carpet area of the un-booked residential apartments
Total carpet area of residential portion.
- Rates of GST payable is either
i. 1% – Affordable Housing Projects.
ii. 5%- Other than Affordable Housing Projects.
- The liability to pay central tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise on the date of completion or first occupation of the project, as the case may be, whichever is earlier.
- Notification also deals with the Upfront amount which is as under:
- Upfront amount called as premium, salami, cost, price, development charges payable in respect of service by way of granting of long term lease of thirty years, or more, on or after 01.04.2019, for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or partly,
- The amount of GST exemption shall be calculated as under:
i. GST on upfront amount x Carpet area of the residential apartments
Total carpet area
- The above exemption is available to the land owner only when the promoter paid the tax on Reverse Charge Mechanism on the residential projects which remain un-booked on the date of issuance of completion certificate or first occupation, whichever is earlier. The amount payable is as under (only applies to residential projects)
** GST on Upfront amount x Carpet area of the un-booked residential apartments
Total carpet area of residential apartments.
- Rates of GST payable is either
i. 1% – Affordable Housing Projects.
ii. 5%- Other than Affordable Housing Projects.
- The liability to pay central tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise on the date of completion or first occupation of the project, as the case may be, whichever is earlier.
Illustration:
| Sl No. | Particulars | Value |
| a. | Total Flats | 10 |
| b. | Already Booked Flats | 7 |
| c. | Un-booked Flats | 3 |
| d. | Sale value of each Flat | Rs. 10 lakhs |
| e. | TDR value | Rs. 50 lakhs |
| f. | Carpet area of Un-booked Residential Apartments | 500 sq.ft |
| g. | Carpet area of Residential Apartments | 2500 sq.ft |
| h. | Carpet area of Commercial Apartment | 1500 sq.ft |
| i. | GST payable (assume) | 5% |
| j. | GST on TDR | Rs. 2.5 lakhs |
| k. | Exemption amount (under Not. No.12/2017) (2.5 lacs x 2500sq. ft / 4000sq. ft) | Rs.1.5625 lakhs |
| l. | Tax exempted in the hands of land owner if, Promoter pays RCM (2.5 lacs x 500 sq.ft / 2500 sq.ft) | Rs. 0.5 lakhs |
| m. | GST payable on commercial apartments (2.5 lacs – 1.5625 lacs) | Rs. 0.9375 lakhs |
Analysis of the above illustration
a. In the above example, all the possible situations were placed relating to un-booked flats or sale of commercial flats for your better understanding.
b. Exemption amount of Rs. 1.5625 lakhs was related to the sale of residential apartments, which is considered as basic need of a person and henceforth, it is exempt from tax to the extent of residential portion.
c. RCM i.e GST payable by Promoter of Rs. 0.5 lakhs is on un- booked flats as on 01-04-2019, where it includes the flats which will be booked on or after 01-04-2019, the flats booked after 01-04-2019 will comes into the picture of new GST regime.
d. Exemption under this notification is allowed to the extent of residential projects but not to any of the commercial projects constructed. In the above case, exemption of Rs.1.5625 lacs is only related to residential project and the payable amount of Rs.0.9375 lacs related to commercial projects.
Common points to TDR’s or FSI and also to upfront amount
i. “an apartment booked on or before the date of issuance of completion certificate or first occupation of the project” shall mean an apartment which meets all the following three conditions, namely-
a. Part of supply of construction of the apartment service has time of supply on or before the said date; and
b. Consideration equal to at least one installment has been credited to the bank account of the registered person on or before the said date; and
c. An allotment letter or sale agreement or any other similar document evidencing booking of the apartment has been issued on or before the said date.
d. Therefore, if any of the above mentioned conditions were not satisfied then such apartment shall be as an Un-booked apartment as on the date of issuance of completion certificate.
ii. Value of supply of service by way of TDR’s or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.
iii. Value of portion of residential or commercial apartments remaining un-booked on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartments charged by the promoter nearest to the date of issuance of completion certificate or first occupation, as the case may be.”
3. As per Not. No. 05/2019- CT(Rate)– Section 9(3) of the CGST Act.
i. This Notification deals only with the taxation as per reverse charge mechanism i.e Promoter is liable to pay tax on behalf of landowner on transfer of TDR’s or FSI for construction of project.
ii. Nature of Supply
a. Supply of Development Rights or Floor Space Index for construction of a Project by Promoters
b. Upfront Amount called as Premium, Salami, Cost, Price, Development charges or by any other name.
iii. Supplier- Any Person
Recipient- Promoter
Analysis:
The above notification applicable to both Residential and Commercial Projects
- The above notification applicable to both Ongoing Project as on 31.03.2019 and Project which would commence on or after 01.04.2019.
- Agreement executed on or before 31.03.2019 for transfer of Development Rights shall also be subject to Reverse Charge in respect of the projects whose completion certificate will be issued on or after 01.04.2019.
4. As per Not. No. 06/2019- CT(Rate)
- This Notification relates to Point of taxation i.e the date when the registered person is liable to pay GST to the Government.
- Service Recipient:
i. a promoter who receives development rights or Floor Space Index (FSI) (including additional FSI) on or after 1 st April, 2019
ii. a promoter, who receives long term lease of land on or after 1 st April, 2019 for construction of residential apartments in a project against consideration payable or paid by him, in the form of upfront amount
- Consideration by the Promoter for supply of TDR’s or FSI:
i. In the form of construction service of commercial or residential apartments
ii. Any monetary consideration paid by him.
iii. The upfront amount (called as premium, salami, cost, price, development charges or by any other name) paid by him.
iv. The supply of construction service by him against consideration in the form of development rights or FSI
- Point of Taxation:
i. On the date of issuance of completion certificate for the project, where required, by the competent authority or on its first occupation, whichever is earlier.
5. As per Not. No. 07/2019- CT(Rate)– Section 9(4) of the CGST Act
i. This notification deals with the Reverse Charge Mechanism, in which the Promoter is liable to pay GST on behalf of landowner on transfer of following goods or services for construction of project, as a recipient of goods or services from unregistered dealer u/s 9(4) of the CGST act.
ii. Category of supply of goods and services were
1. Supply of such goods and services or both [other than services by way of grant of development rights, long term lease of land or FSI ] which constitute the shortfall from the minimum value (@ 80% in value) of goods or services or both required to be purchased by a promoter for construction of project, in a financial year.
2. Supply of Cement. Value of the Cement shall be the shortfall required to be purchased by the promoter for the construction of the project till the issuance of the completion certificate.
3. Capital Goods falling under any Chapter to the Schedule to the Custom Tariff Act, 1975.
iii. This notification applies to the person who opted to pay GST without availing Input tax credit i.e under New scheme of taxation (@ 1% or @ 5%).
6. Difference between Not. No.07 & Not. No. 05/2019
- No.05/2019 applies to the case, where the recipient is liable to pay on reverse charge basis u/s 9(3) of the CGST Act,2017
i. On sale of TDR’s or FSI by the landowner.
- No.07/2019 applies to the case, where any goods or services received from unregistered suppliers (landowners) to registered person(Promoter), then the supplies made by the unregistered person to registered person will be taxed in the hands of registered person(Promoter).
i. This notification applies to only above mentioned category of goods or services.
7. As per Not. No. 08/2019- CT(Rate)
- This notification deals with the rate of tax to be paid by the Promoter on the supplies made by the landowner.
- Central Tax Rate dated 28.06.2017 Central Tax @ 9% and State Tax @ 9% has been prescribed.
- Nature of Supply– Supply of any goods other than cement and capital goods by an unregistered person to promoter for the construction of project.
- Reverse Charge– Tax shall be payable by the Promoter as the recipient of the goods under Section 9(4) of CGST Act, 2017 @ 18%.
Conclusion:
♦ No, the landowner is not liable to pay GST if the promoter pays tax on behalf of the landowner on transfer of TDR’s or FSI or on upfront amount, but there was an exception where the landowner might be taxed within the purview of GST which was mentioned as below.
♦ Case where the landowner is liable to pay GST:
- If the landowner transferred the flat handed over by the promoter and
- No completion certificate has obtained on the date of transfer, in such cases landowner is liable to pay GST on such transfer.
- For payment of GST, landowner is required to take GST registration and pay tax by availing Input tax credit charged by the promoter.
- In my view, it is better to stay till the completion certificate and then transfer the flat to outside buyers.
- By the aforementioned provisions, sale of flat by landowner after obtaining the completion certificate is exempt from tax.
- If sold before completion certificate, then the landowner is liable to pay GST.
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