What is Joint Development Agreement
The joint development agreement is a contract between a landowner and a real estate developer to build a new project on the land of the owner. There are 2 types of agreement that may be entered into, they are Revenue sharing or Area sharing, sometimes it is partly revenue sharing and partly area sharing. JDA can be done both for residential as well as for the commercial projects. In real estate, such transactions are entered into by way of TDR of FSI.
Types of residential projects
There are 2 types of residential projects
1. Affordable residential projects
2. Non-Affordable residential projects.
What are affordable residential apartments
Affordable housing apartment is a residential apartment which commences after 01.04.2019 of which promoter has opted for a new rate of 1% having a carpet area of 60 sq mt in metropolitan cities and 90 sq mt in cities or towns other than metropolitan cities and the gross amount charged by the builder is not more than forty-five lakhs rupees.
Metropolitan cities are Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, and Mumbai.
Gross amount includes charges like PLC but does not include other charges like maintenance and insurance charges.
As per section 7(1)(a), all forms of supply of goods and services or both as a sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in course of furtherance of business.
As per schedule III of which activities or transaction which shall neither be treated as supply of goods nor a supply of services in which supply of land, subject to clause (b) of paragraph 5 of schedule II sale of building (where the entire consideration is received after completion certificate)
As per notification 4/2018 transfer between landowner to the developer shall be taxable.
As per entry no. 41A and 41B of notification 12/2017 transfer of TDR/FSI by the landowner to the developer shall be exempt subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them.
As per notification 13/2017 services supplied by any person by way of TDR or FSI for construction of a project by promoter the tax shall be payable by the promoter by RCM.
Types of transaction
1. Landowner to developer
2. Developer to landowner
3. Developer to third parties
Point of discharge of tax
The liability to pay GST on development rights shall arise on the date of completion or first occupation of the project, whichever is earlier.
In case of supply of FSI wherein consideration is in the form of commercial or residential apartments, the liability to pay tax shall arise on the date of issuance of completion certificate.
In case of supply of FSI wherein monetary consideration is paid by the promoter, liability to pay tax shall arise on the date of issuance of completion certificate only if such FSI is relatable to the construction of residential apartments. However, liability to pay tax in case of a commercial apartment shall arise immediately on the date of the agreement.
If the developer sells the apartment to the third parties before completion certificate then he will charge and collect GST as when it is sold.
For the apartment sold by the developer after completion certificate to the third parties shall be exempt.
Rate of tax
Supply of TDR of FSI which is proportionate to the construction of the residential property that remains un-booked on the date of issue of completion certificate or first occupation would attract GST at the rate of 18% but the amount of tax shall be limited to 1% or 5% of the value of apartments are affordable or non-affordable residential projects.
For the flats sold by the developer before completion certificate then the developer will charge GST at the rate of 1%, 5%, 12% for the affordable, non-affordable, commercial projects.
For the flats sold by the developer after issuance of completion certificate then the developer will not charge GST as it is exempt.
Condition to be followed
For availing the above-mentioned rates the developer has to purchase 80% of the inward supplies from a registered supplier, if there is a shortfall of the purchase from the registered supplier then the developer has to pay GST on reverse charge supplies at the rate of 18%, for cement purchased the applicable rate will be 28% and for the capital goods applicable rates. While calculating 80% of supplies which is exempted goods or supplies shall also be considered, the value of electricity, high-speed diesel, motor spirit, and natural gas used in the construction of residential apartments shall be excluded.
For flats to be considered as Real Estate Residential Projects a maximum of 15% of the carpet area can be commercial to avail the rate of 1% or 5%.
The value of TDR shall be equal to the amount charged by the developer for similar apartments from the independent buyers booked on the date nearest to the date on which such development rights of FSI are transferred by the landowner to the developer.
Input Tax Credit
The new rates of tax that are 1% on affordable and 5% on non-affordable housing shall be applicable without the claim for input tax credit.
If the developer is making a commercial property that is more than 15% of the total carpet area then the developer can avail input tax credit. However, where the entire consideration is received after completion certificate then the sale value will be exempt and the developer will not be able to avail input tax credit.
Sometimes the developers give the projects on works contract, in such a case the works contractor shall charge GST at the rate of 12% provided the carpet area of affordable residential apartments should not be less than 50% of the total carpet area of all the apartments in the projects.
If the conditions are not fulfilled then the recipient of the service shall be liable to pay such amount of tax on reverse charge basis. The amount being the difference of tax actually paid (12%) and that payable (18%).
If the projects are used both for residential as well as for commercial projects
The development rights are exempt if sold before the issuance of completion certificate. In case where both commercial, as well as residential units, are being built then the mount of exemption can be worked out as
1. The apartments given to slum dwellers in redevelopment projects where monetary consideration is paid by Government is a taxable supply subject to GST.
2. GST is payable on the transfer of development rights by a developer to another developer under the reverse charge mechanism with ITC.