Implication of GST on Joint Development Agreement executed on and after 01st April 2019

Joint Development Agreement

Under the Joint Development Agreement, hereinafter referred to as JDA, the land owner contributes its land to the real estate developer for construction of real estate projects and the real estate developer undertakes construction of real estate projects on such land. Developer in turns provides apartments or apartments with additional monetary consideration to the land owner. After signing of JDA between landowner and developer, it gets registered with the registering authority. Further, the land owner executes a General Power of Attorney in favour of the developer to get the following arrangement done, namely –

1. To look after, supervise, control all the affairs in respect of the property/ land;

2. To complete the mutation with respective authority, if pending;

3. To settle the disputes with local people or nagarik committee, if any;

4. To get permission from statutory authorities like Police Station, Fire Brigade, Electricity authority, municipal authority;

5. To enter into Agreement/s for Sale with the interested party/parties in respect of the developer allocation;

6. To sign and execute Deed of Conveyance and present them for registration in respect of Developer allocation;

7. To appoint advocate/advocates in connection with all legal matters

The above activities covered under General Power of Attorney are example only. The activities are depending on the circumstances of the property and location of the property including political environment also.

Generally the following types of JDA are executed-

1. Area Sharing Agreement

  • Residential Projects only;
  • Commercial Projects only;
  • Residential cum Commercial Projects

1. Revenue Sharing Agreement

2. Combination of Area and Revenue Sharing Agreement.

Transfer of development right to promoter by execution of JDA – a supply of service

Under the Joint Development Agreement, the land owner simple made an agreement with the developer/ promoter to development the construction of building on the said land. The land owner transfers the right on the land to promoter to construct the building. Joint Development Agreement is not an agreement of sale of land by the land owner to the promoter. The transfer of development right on the land is a supply of service to the developer and liable to tax under GST regime with a few exceptions. Land owner transfers or allows the right on the land to execute the construction of the project by the developer against the consideration in the form of free allotment of apartment or apartment with monetary benefits.

GST will be paid by the developer under reverse charge mechanism-

Although the land owner transfers the development right and provides the service in the form of development right in favour of promoter. Service provider is the land owner and promoter is the service recipient. However, supply of service in the form of Transfer of development right on and after 01st April 2019 is liable to pay tax under reverse charge by the promoter vide notification no. 05/2019- Central Tax (Rate) Dated 29th March, 2019 but effective from 01st April, 2019.

Exemption to pay GST on development right-

Government vide notification no 04/2019 dated 29th March, 2019 has inserted entry no 41A and 41B to the main notification of exemption.

GST shall not be payable on construction of residential apartments which are booked before the issuance of completion certificate (CC) or the first occupation of the project whichever is earlier. However, the GST on development rights on the un-booked residential apartments shall be payable on the date on issuance of completion certificate (CC) or the first occupation of the project whichever is earlier.

GST shall be payable on development rights towards construction of commercial apartment whether it is booked before the completion certificate or after the completion certificate.

Rate of Tax on development right-

1. Un-booked residential apartment: General rate of GST would be 18% under SAC code 9972. In case of un-booked apartment as on the date of issuance of Completion Certificate or First Occupation, whichever is earlier the GST rate would be 18%. Provided that tax payable shall not exceed 1% in case of un-booked affordable house and 5% in the cases other than un-booked affordable house.

2. Un-booked commercial apartments: GST rate is 18% without any ceiling.

3. Commercial Apartments: GST rate is 18% without any ceiling.

Valuation of development rights-

1. Un-booked residential/ commercial apartment: valuation shall be deemed to be the equal to the value of the similar apartments charged by the promoter nearest to the date of issuance of completion of certificate of first occupancy, as the case may be.

2. Commercial apartments sold to independent buyer: Monetary amount charged by the promoter for sale of commercial apartment. The value on which the commercial apartments have been booked.

3. Commercial apartments allotted to land owner: Valuation would be the similar apartment charged by the promoter to independent buyer nearest to the date on which development right is transferred.

Time of supply-

The liability to pay GST on development right shall arise on the date of completion of the project or first occupation of the project, whichever is earlier. The developer/ promoter shall liable to pay tax on un-booked of residential apartments on the date of completion of the project or first occupation of the project, whichever is earlier. (Refer notification 04/2019 Dated 29th March 2019 and 06/2019 Dated 29th March 2019).

Compiled by- CMA Utpal Kumar Saha, ACMA, LLB, [email protected]

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March 2021