Vidya Khanna
1. Introduction
The real estate industry is one of the most important pillars of the Indian economy. Real estate industry contributes approximately between 6-8% to India’s Gross Domestic Product (GDP) and it stands second after IT industry in terms of employment generation. In the era of globalization and development, there has been a slowdown in real estate sector. To boost the sector, CBIC had already simplified many of the GST procedures w.e.f. 01/04/2019 by invoking section 148 of the CGST Act, 2017.
Under the GST, the term ‘supply’ is defined in a wider manner which also includes barter/ exchange of goods or services; whereas the term ‘services’ is defined to be anything other than goods under section 2(102) of CGST Act, 2017. Further, Entry No. 5 of Schedule III of the CGST Act, 2017, explicitly excludes sale of land from the scope of supply. Still there was certain ambiguity regarding taxability of transfer of development rights under Joint Development Agreement (JDA), as to whether the same are liable to GST or not. However, the Notification no. 4/2019 dated 29/03/2019, clarifies that the transfer of development rights from the landowner to a developer to be taxable.
Recently, the Authority for Advance Ruling (AAR) Karnataka, in the case of Maarq Spaces Pvt. Ltd. (order no. KAR ADRG/199/2019) dated 30/09/2019, had held that the activities envisaged under the JDA between a developer and land owner tantamount to a supply of service and not of land and is therefore liable to be taxed under GST at 18%.
In this Article we will discuss about JDA and its taxability under GST.
2. What is JDA
A trend of multiple projects has been observed as Joint Develogstpment Agreement. A JDA is an agreement between a landowner and a real estate developer for construction of building (commercial, residential or both); wherein the landowner agrees to transfer the Transferable Development Rights (TDR) or Floor Space Index (FSI) including additional FSI and the developer agrees to take the TDR/FSI and construct a building. The consideration for such a transfer can be in terms of cash, apartments or share in profit from the development project.
3. GST rate
| Particulars | Rate |
| Services by way of transfer of development rights (TDR) or Floor Space Index (FSI) (including additional FSI) on or after 01st April 2019 for construction of a project against consideration paid or payable by developer, wholly or partly, in the form of construction service of commercial or residential apartments in the project | Supply of TDR or FSI or long term lease of land, on such value which is proportionate to construction of residential apartments that remain 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 value of apartment depending upon whether the residential apartments for which such TDR or FSI is used, in the affordable residential apartment category or in other than affordable residential apartment. |
4. Time of supply
| 1. | Supply of TDR | The liability to pay GST on development rights shall arise on the date of completion certificate or first occupation of the project, whichever is earlier. Therefore, promoter shall be liable to pay tax on reverse charge basis, on supply of TDR on or after 01-04-2019, which is attributable to the residential apartments that remain un-booked on the date of issuance of completion certificate, or first occupation of the project. |
| 2. | At what point of time, the promoter should discharge its tax liability on FSI (including additional FSI | On FSI received on or after 1.4.2019, the promoter should discharge his tax liability on FSI as under:
(i) In case of supply of FSI wherein consideration is in form of construction of commercial or residential apartments, liability to pay tax shall arise on date of issuance of Completion Certificate. (ii) (ii) In case of supply of FSI wherein monetary consideration is paid by promoter, liability to pay tax shall arise on date of issuance of Completion Certificate only if such FSI is relatable to construction of residential apartments. However, liability to pay tax shall arise immediately if such FSI is relatable to construction of commercial apartments. |
5. Concluding Remarks
GST on JDA/FSI is clarified to a great extent by Karnataka Authority for Advance Ruling in its recent ruling yet it is to be kept in mind that it is binding on the applicant and its jurisdictional officer. Since GST regime is in its nascent stage, thus above rulings can be seen as great relief to promoters. Nevertheless, there is hope that CBIC will resolve to provide more clarity about the subject matter.
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