Summary: The Goods and Services Tax (GST) treatment for the sale of developed land plots in India presents a complex picture, with official clarifications from the Central Board of Indirect Taxes and Customs (CBIC) seemingly at odds with some Advance Authority Rulings (AAR) and Appellate Advance Authority Rulings (AAAR). According to statutory provisions outlined in Schedule III of the Central Goods and Services Tax Act, 2017, the sale of land is explicitly deemed neither a supply of goods nor services, thus falling outside the purview of GST. This position was reinforced by CBIC Circular No. 177/09/2022-GST dated August 3, 2022, which clarified that the sale of developed land, even with infrastructure like drainage, water, and electricity lines, remains a sale of land and is not subject to GST. However, the circular also noted that services provided for the development of land by developers would attract GST. Contradictory rulings from the Gujarat AAR and AAAR in cases like Sukhjit Commerce LLP and Shree Construction have previously held that GST is applicable on the development activity component of such sales, particularly when infrastructure costs are discernible. Despite these rulings, which are binding only on the applicant, the CBIC circular is considered binding on the tax authorities. Industry experts suggest that when developed plots are sold for a single, consolidated price encompassing development charges, it should be treated as a composite supply where the principal supply is the sale of land, hence not attracting GST, aligning with the CBIC’s stance. To mitigate potential disputes and avoid the levy of GST on the development portion, developers are advised against itemizing development charges separately in sale agreements and instead opt for a single composite price for the plot sale. GST, in this context, should primarily apply to the services procured by the developer for undertaking the development work itself.
This note summarizes the GST implications on sale of developed land in Gujarat, based on relevant statutory provisions, CBIC circulars, and AAR rulings.
Page Contents
1. Legal Framework
As per Sl. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017, “Sale of land” is neither a supply of goods nor a supply of services, and hence does not attract GST.
2. CBIC Circular No. 177/09/2022-GST dated 03.08.2022
The relevant paragraphs from the circular are as follows:
- Para 14.2: “As per Sl no. (5) of Schedule III of the Central Goods and Services Tax Act, 2017, ‘sale of land’ is neither a supply of goods nor a supply of services, therefore, sale of land does not attract GST.”
- Para 14.3: “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.”
- Para 14.4: “However, it may be noted that any service provided for development of land, like levelling, laying of drainage lines (as may be received by developers) shall attract GST at applicable rate for such services.”
3. Relevant AAR and AAAR Rulings
- AAR – Gujarat – Sukhjit Commerce LLP [Advance Ruling No. GUJ/GAAR/R/2021/37]: Held that sale of developed land (with infrastructure like roads, drainage) attracts GST on the value of development activity.
- AAAR – Gujarat – Shree Construction [GUJ/GAAAR/APPEAL/2021/36]: Confirmed that the development component is considered as supply of service and attracts GST.
Note: These rulings apply only to the applicant but may be indicative of department’s view. However, Circular No. 177/09/2022-GST, being binding on the department, clarifies that developed land sale is not taxable.
4. Composite Supply Interpretation – Development Charges with Land
- When a developer sells plots of developed land (i.e., land along with infrastructure like levelling, drainage, internal roads, plumbing, etc.) for a single consolidated consideration, the transaction qualifies as a “composite supply” under Section 2(30) of the CGST Act, 2017.
- As per Section 8(a) of the CGST Act, the tax liability on a composite supply is determined based on the principal supply. In this case, the principal supply is “land”, which is covered under Schedule III of the CGST Act and is not a supply under GST.
- Therefore, where development charges are naturally bundled and supplied in conjunction with the sale of land (and not separately itemized), the entire transaction should be treated as a sale of land – and hence, not liable to GST.
- This interpretation is consistent with Para 3 ofCBIC Circular No. 177/09/2022-GST dated 03.08.2022, which clarifies that even after levelling and laying down drainage lines, the transaction remains a sale of land and does not attract GST.
- To avoid any contrary interpretation (such as those in AAR rulings like Sukhjit Commerce LLP or Shree Construction), it is advised not to separately show development charges in sale deeds or agreements.
5. Conclusion & Recommendations
- Sale of developed land (with internal infrastructure like drainage, levelling, roads, plumbing etc.) is considered as “sale of land” and does not attract GST as per Para 14.3 of CBIC Circular No. 177/09/2022-GST.
- GST shall be applicable only on services received by the developer from contractors or vendors for carrying out development work.
- Developers should avoid separately itemizing “development charges” in the sale deed to prevent classification as supply of service.
- One composite price for plot sale (including infrastructure) is recommended.
6. What to Avoid:
- Do not separately mention “development charges” in sale deeds/invoices.
- If split, it could be treated as a mixed supply or independent service, potentially attracting 18% GST on the development portion, as seen in AAR rulings like:
- Sukhjit Commerce LLP (Gujarat AAR)
- Shree Construction (Gujarat AAAR)
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Disclaimer: This note has been prepared based on the information available as on the date and interpretation of relevant provisions of the CGST Act, circulars, and AAR/AAAR rulings. The interpretation of law is subject to change by courts or government clarifications. Readers are advised to consult with a qualified professional before taking any business decision based on this document.
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