1. What is Joint Development Agreement (JDA)?

• This is an arrangement between an owner of the land and a builder where the land owner contributes the land and the developer undertakes the responsibility of obtaining approvals, property development, launching and marketing the project with the help of his financial resources.

• As beneficial it is, it’s not devoid of any limitations. The landowner in these cases has to wait for a long time till the construction is complete.

Example: Mr.A is a land owner, contributes the land to Mr.B (developer) to construct the flats and handover to the landowner as per the terms of the agreement.

2. Whether sale of land by Mr.A is chargeable to GST or not?

  • As per para 5 of Schedule III of CGST Act, 2017,
    • Sale of land is neither supply of goods nor supply of service.
    • Therefore, Mr.A is not liable to pay GST on transfer of land to Mr.B for construction of flats as JDA.

3. What are the rates of GST for Construction services under old scheme and new scheme?

S.No.  Name of the Service  Rate in New Scheme from 01.04.2019 Rates in Old Scheme on or before 31-03-2019. (Ongoing Projects)
1. Construction of affordable residential apartments by a promoter in a RREP / in REP  

 

1% (No ITC)

a. 12 % (after 1/3rd abatement  allowed for Land value)

b. With Full ITC

2. Construction of residential apartments other than affordable residential apartments by a promoter in an RREP/ in REP,  

 

5% ( NO ITC)

a. 12 % (after 1/3rd abatement allowed  for Land value)

b. With Full ITC

3. Construction of commercial apartments (shops, offices, godowns etc.) by a promoter in an RREP.  

5% ( NO ITC)

a. 12 % (after 1/3rd abatement allowed  for Land value)

b. With Full ITC

4. Construction of commercial apartments (shops, offices, godowns etc.) by a promoter in an REP a. 12 % (after 1/3rd abatement allowed  for Land value)

b. With Full ITC

c. 12 % (after 1/3rd abatement allowed  for Land value)

d. With Full ITC

** Ongoing projects can either pay tax at new rates or at old rates, which is beneficial to the builder, based on the cash flows (Refer Q.No.9 below)

#RREP- Residential Real Estate Project

# REP- Other than Residential Real Estate Project

4. How can we classify whether the project is RREP or REP?

  • In case of residential apartments, there is no issue with respect to classification of RREP or REP,
  • But the issue is only related with respect to the Construction of Commercial apartments, as there were two rates in new scheme, we are solely responsible for the classifying whether the project is RREP or REP.
  • If the classification was not done properly, builder is liable to pay TAX+ INTEREST on the difference tax payable +PENALTY, from the date of transfer till the date of payment of GST.
  • Here is the solution, for classifying the projects into RREP
  • RREP– shall mean a Real Estate Project
    • in which the Carpet Area of the commercial apartment
    • is not more than 15 percent
    • Of the total carpet area of all the apartmentsin real estate project.

5. What is carpet area?

The term carpet area shall have the same meaning as assigned to it under clause (k) of Section 2 of RERA Act, 2016 which reads as below:

a. the term carpet area means –

b. the net usable floor area of an apartment

c. excluding

d. the areas covered by external walls;

e. area under service shafts;

f. exclusive balcony/veranda; and

g. exclusive open terrace area;

a. But including area covered by internal partition walls.

6. The affordable residential apartment should not have a carpet area exceeding 60 sqm in metropolitan cities and 90 sqm in other places. Will the internal walls of the apartment, balcony or verandah be included 60/90 sq meter?

a. See the carpet area definition mentioned in question no. 5, in which it includes the area covered by the internal partition walls also.

b. Therefore, the internal walls of the apartment, balcony or verandah will be included in 60/90 sq meter .

7. What is meant by affordable residential apartments?

  • A residential house/ flat of carpet area of
    • 90sqm in Non metropolitan cities and
    • 60sqm in case of metropolitan cities,
    • Where value does not exceed 45lacs.

8. What is the criterion for considering a project as ongoing project?

A project is said to be an ongoing project if t satisfies all the following conditions:

  • Commencement certificate (CC) in respect of the project has been issued on or before 31stMarch 2019  and it is certified by any of the following that construction has been started on or before 31st March 2019 –

a) A Chartered Engineer; or

b) A licensed surveyor of the respective local body.

  • Where CC is not required to be issued by a competent authority, it is certified by either a Chartered Engineer or licensed surveyor that construction of the project has started on or before 31stMarch 2019;
  • Completion certificate has not been issued or first occupation has not been taken place on or before 31stMarch 2019;
  • Apartments being constructed under the project have been partly or wholly booked on or before 31stMarch 2019.
  • Construction shall be considered to have started on or before 31stMarch 2019 if the

1. Earth work for the site preparation for the project has been completedAND

2. Excavation for the foundation has startedon or before 31st March 2019.

9. In case of a single building registered as 2 (two) separate projects under the provisions of RERA viz. 1st to 10th floor as one Project and 11th to 20th floor as another project, whether the Developer can consider the entire building as single ongoing project?

  • Both the projects registered as separate projects under RERA, 2016 shall be treated as distinct projects and will have to independently satisfy the requirements of the definition of ongoing projects.

10. Furthermore, if different towers in a single layout are registered as separate projects under the provisions of RERA but where the approvals are common for all the towers, whether the Developer can consider entire layout as a single Ongoing project ? 

a. All the towers registered as different projects under RERA shall be treated as distinct projects.

b. Only such towers registered as distinct projects for which commencement certificate has been issued on or before 31-03-2019, construction has started on or before 31-03-2019 and for which apartments have been booked on or before 31-03- 2019 but completion certificate has not been issued or first occupation has not taken place by the said date shall be treated as ongoing projects.

11. A registered project has three blocks and Completion Certificate has been received for one block prior to 1st April, 2019 and for two blocks will be received after that date. Will such project be called as ongoing project?  

  • Where more than one completion certificate is issued for one project, for the purpose of definition of ongoing project as defined in the Notification No. 11/ 2017- CTR, dated 28.06.2017, completion certificate issued for part of the project shall not be considered to have been issued for the project on or before 31-03-2019 unless completion certificate(s) have been issued for the entire project.
  • Therefore, if completion certificate has been issued for part of the project on or before 31- 03-2019, the project shall still be considered as ongoing project provided other conditions of the definition of ongoing project are met.

12. What if a project commenced on or before 31.03.2019 but no bookings have not started? Whether it can be classified as ongoing project?

  • To classify a project as an ongoing project, it should satisfy all the conditions which are stated above, otherwise it is not an ongoing project and will mandatorily cover in the new scheme of rates and have to pay 1%/5% as applicable.

13. What are the options available to ongoing projects after introduction of new scheme of rates?

 There are 2 options available for promoters who have started construction of a project on or before 31.03.2019:

  • To opt for old rates by applying in Form IV before 20.05.2019 and reverse the credit availed for unsold flats or
  • To opt for new tax rates.
  • Therefore, every builder should note that if he is willing to pay tax at old rates, he is required to submit FORM IV; otherwise he should pay tax at new rates.

14. At which rate it is more beneficial to builder i.e. whether adoption of old rate or new rates. Explain it with analysis on both the old and new scheme?

  • The analysis of both the schemes is given below:

Old scheme

Project consists of 10 flats
Each Flat costs 25,00,000.00
ITC available in credit ledger 27,00,000.00
Flats sold before Occupancy Certificate 7
Flats sold after Occupancy Certificate 3
Value of supply liable to GST (25 lacks x 7) 1,75,00,000.00
Intra State tax liability @ 12 % 21,00,000.00
Balance available 6,00,000.00
Exempted sales i.e., flats sold after OC (25 lacks x 3) 75,00,000.00
Total Turnover 2,50,00,000.00
ITC to be reversed due to exempted sales under Rule 42 (i.e.  27lacs x 3flats / 10 flats.) 8,10,000.00

New scheme

In case of new projects started on or after 01.04.2019, the GST implications will be as follows:

Project consists of 10 flats
Each Flat costs 25,00,000.00
ITC available in credit ledger

0

Flats sold before OC                7
Flats sold after OC                3
Value of supply liable to GST            1,75,00,000.00
Intra State tax liability @ 1 %        1,75,000.00
Balance available               0
Exempted sales i.e., flats sold after OC         75,00,000.00
Total Turnover            2,50,00,000.00
ITC to be reversed due to exempted sales under Rule 42 No reversal (Since no ITC is used to discharge tax liability).

Therefore, it may be concluded that, in case of ongoing projects, based on inflow and outflow of tax, old scheme of tax rates is suggestible.

15. What will be the procedure to adopt new rate of taxation and the procedural aspect regarding credit reversal?

  • The builder after analyzing or looking into the above mentioned analysis, if he is willing to adopt the new rate, he can adopt the new rates only after reversal of input tax credit as on 31-03-2019.
  • Reversal of input tax credit as on 31-03-2019 should be made in three cases
    • Where percentage of completion as on 31-03-2019 is not zero or where there is inventory in stock.
    • Where percentage of completion as on 31-03-2019 is zero but invoicing has been done having time of supply before 31-03-2019.
    • Imposition of upper cap of 25%.

16. What is the position of input tax credit availability on or before 31-03-2019?

a. If the builder opts to pay old rates of tax, he can enjoy the credit available with him as on 31-03-2019, after the reversal of credit as per Rule 42 and Rule 43 of the CGST rules, 2017 and also after filing Form IV within the time limit prescribed by the GST council.

b. If the builder opts to pay new rate of tax, then he should reverse the credit available with him as on 31-03-2019.

17. What is the treatment for advances received by builders from land owners or from other parties?

  • In case of advance received for any supply, time of supply is fixed at the point when advance is received, irrespective of the fact whether the supply is made or not. Accordingly, GST needs to be paid with reference to the time at which advance is received.
  • Therefore, as and when an advance is received for a flat before OC, the promoter is required to pay GST on advance and need to adjust with the tax liability when actual supply is made.

18. Whether builders can adopt new rate of tax on advance received before 31-03-2019?

  • No, advance received from the builders before 31-03-2019 shall be liable to pay tax at the rates applicable as on 31-03-2019 i.e. old rates, since the time of supply is on the date of advance received.

19. If a builder has received OC for a project before 31.03.2019, which scheme is more advantageous to him, old scheme or new scheme?

Old Scheme:

  • If a builder received the OC for a project before 31.03.2019, it means sale of flats after OC date is an exempt sale and he needs to reverse the credit attributable to the said flats. This option is available under old scheme.

New Scheme:

    • If he adopts new scheme of tax rates, then also as he is making an exempt sale, he needs to reverse the credit previously availed.
  • So there is no difference from old scheme to new scheme for a promoter who received OC before 31.03.2019.
  • Based on his convenience and outflows during the project construction time, he can go for new scheme.

20. What are the consequences of GST, if a project is started on or after 01.04.2019?

  • If a project is started on or after 01.04.2019, it will straight away fall in the new scheme of tax rates and no option for old scheme for any type of projects.

21. Whether new scheme of rates have major effect on which type of Real estate projects?

  • New scheme does not affected the commercial projects which is a Real estate project other than Residential Real Estate project and the rate remained same i.e., 12% ( after allowing 1/3rd abatement).
  • The new scheme majorly affected the residential projects in a real estate sector. The rate decreased from 12 %( after allowing 1/3rd abatement) with ITC to 1% (after allowing 1/3rd abatement) without ITC.

22. What are the conditions for applicability of new tax rates?

a. NO ITC

b. Reverse ITC based on carpet area (Annexure I and Annexure II) for supply of construction services-whose time of supply falls on or after 01.04.2019.

c. In case of JDA, builder liable to pay tax for supplies made to land owner and land owner is eligible to take ITC of such tax.

d. 80% of value of inputs and input services – other than TDR, Electricity, HSD, Motor Spirit, and Natural Gas- only from registered supplier.

e. Inputs & Input services from registered supplier<80% RCM tax @ 18 %*( 80% value- Actual value).

f. If cement is purchased from URD then tax shall be paid under RCM at the rate applicable to it. Tax to be paid in the month in which cement is received.

g. Inward supplies from RD & URD—Project wise—submit in prescribed form– by end of quarter following the FY.

h. The tax liability on the shortfall purchases from URD – to be paid in month of June following the end of the financial year.

i. RCM Goods and services shall be deemed to have been purchased from registered suppliers.

j. Total ITC to be shown as –Ineligible ITC in GSTR-3B (every month).

k. Two rates for discharging RCM liability

i. For all inputs and input services-18%

ii. For cement- 28%

23. Do a promoter/ builder have to purchase all goods and services from registered suppliers only?

  • Yes, a promoter opted to pay tax under new scheme of tax rates from 01.04.2019 have to buy inputs and input services used in the construction of said project at least 80% from registered suppliers only.

24. If value of purchases as prescribed above from registered supplier is less than 80%, what would be the applicable GST rate on such purchases?

  • If there is any short fall below 80%, then the promoter needs to pay tax under RCM on the said shortfall @ 18% even though the rates on the respective goods is below 18%.
  • If that shortfall consists of cement, then 28% tax to be paid for cement purchase portion. And also a statement is to be filed within 3 months from the end of the financial year and any tax liability under RCM is to be discharged before end of the quarter falling after the end of the financial year, if not interest should also be paid.

25. In case of a Real Estate Project, comprising of Residential as well as Commercial portion (more than 15%), how is the minimum procurement limit of 80% to be tested, evaluated and complied with where the Project has single RERA Registration and a single GST Registration and it is not practically feasible to get separate registrations due to peculiar nature of buildings?

  • The promoter shall apportion and account for the procurements for residential and commercial portion on the basis of the ratio of the carpet area of the residential and commercial apartments in the project.

26. What shall be the rate of GST applicable on projects in respect of which OC has been issued prior to 01.04.2019, but the balance demands are pending? Such projects are neither projects which commence on or after 01.04.2019 nor ongoing projects.

  • Time of supply of the service by way of construction of apartments in such projects falls prior to 01.04.2019 and accordingly the rates as existed prior to 01.04.2019 would apply to such balance demands.

27. Whether the inward supplies of exempted goods / services shall be included in the value of supplies from unregistered persons while calculating 80% threshold?

  • Inward supplies of exempted goods/ services shall be included in the value of supplies from unregistered persons while calculating 80% threshold.

28. Whether the purchase of Land from an unregistered person shall be required to be included in the value of Input and Input Services for the purpose of calculation of 80% threshold?

  • As per Schedule III, Entry No 5, of CGST Act, sale of land is not a supply. The transactions by way of grant of development rights, long term lease, FSI etc. are not required to be included in the value of Input and Input Services for evaluation of criteria of 80% from registered persons.

29. I have already paid tax of 12% (effective) on installments paid before 01.04.2019. I wish to get the benefit of new rate of 1% or 5%. Whether it is the builder or the buyer who has the option to pay tax at the new or old rates?

  • The buyer cannot exercise option to pay tax at the new or old rates. It is the builder, who has to exercise the option to pay tax on construction of apartments at the old rate of 12% latest by 20th May, 2019.
  • If the builder doesn’t exercises his option to continue to pay tax at the old rate by the said date, then the effective GST rate applicable on all your instalments payable to the builder on or after 01.04.2019 as per the contract shall be either 1% or 5%, depending on whether the apartment is an affordable or other than affordable residential apartment.

30. In respect of the construction and supply of premises under specific schemes like PMAY, Housing for All (Urban), RAY etc., starting on or after 01.04.2019,what is the applicable rate of tax ?Can he continue to pay 12% or 8% of tax?

  • The rate of 8% and 12% with ITC is not available for construction of apartments in a project that commences on or after 01-04-2019.
  • It makes no difference whether or not the apartments are being constructed under PMAY or any other housing schemes of the Central or State Government.

31. Price of the apartment having carpet area of 80 sqm is 48 lakhs. What is the rate of GST applicable on construction of this apartment?

  • Affordable project means a residential house/ flat of carpet area of 90 sqm in Non metropolitan cities and 60 sqm in case of metropolitan cities, of which value does not exceed 45 lacs.
  • So, the conditions specified all the inclusive and both should be satisfied.
  • In the above question, although the carpet area is below 90 sqm, as the price exceeds Rs. 45 lacks, it cannot be treated as affordable housing project. So, 5% tax is to be paid.

32. What will be the treatment on brokerage charges if flat sold by the builder on behalf of land owner?

  • Yes, the builder is also liable to pay GST on brokerage charges received from the land owner.

33. Whether builders are liable to Audit under GST Act?

According to Rule 80(3) of CGST Rules, 2017,

  • Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of section 35 and
  • He shall furnish a copy of audited annual accounts and a reconciliation statement, duly certified, in FORM GSTR-9C, electronically through the common portal.
  • So, if a promoter of a project crosses Rs. 2cr, including exempt supplies also, have to get his accounts audited.

Author Bio

Qualification: CA in Practice
Company: M J V SHANKAR
Location: Visakhapatnam, Andhra Pradesh, IN
Member Since: 11 May 2019 | Total Posts: 3

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15 Comments

  1. Mohan Kumar says:

    Hi Sir,
    First of all very nice article.
    I have entered into JDA with the land owner in 2017. My query now is
    We have collected advance money from the prospective buyer and paid GST accordingly.
    1. Now we will be applying for OC in August 2019 when we should we pay GST for the entire consideration?
    2. Who should collect and pay GST on owner’s Share.
    3. What is the procedure after obtaining OC

    1. M J V SHANKAR says:

      Dear Mohan Kumar,
      Thanks for reading the article and your query is related to payment of GST. Following are the solutions for your queries.
      1. Even if you obtain your OC, your are liable to pay tax on the amount taken for the flat from the buyer, from whom u took the advance before obtaining OC. To exempt from GST, no single rupee should get from buyer before OC.
      2. Builders are liable to pay GST on land owners share.
      3. After obtaining OC, no GST is required to pay, only the case where GST is payable is if u obtain any advances from the buyer before OC, as in first case.

  2. K.A.RAMAM says:

    Dear sir, We have started our Residential Building Construction Project from 01.04.2019 registered under RERA, we have started our Booking from 25.06.2019. we have taken Rs.250000/- against booking advance. we are ready to pay 1% GST under Affordable …..if our to to Prepare Agreement for Sales ( Rs.25,00,000/-) total cost. Can we collect 1% on total value…. or we have collect booking amount from customer, then we will pay GST 1% , please clarify my question

    1. Shankar says:

      Dear Ramam Sir,
      Thanks for reading the article and your query is related to whether you should collect tax on the amount collected from customer or on total amount??
      In my view, if you had registered the agreement of sale you are liable to pay GST on total amount Rs.25,00,000/- not only on advance received Rs. Rs.2,50,000/- . Henceforth, you should collect tax @ 1% on value of agreement of sale and remit it to the government.

  3. Nagaraja C M says:

    Dear Sir,

    My query is we are the builders constructing residential flats under JDA. We obtained OC for one of our project before 01.04.2019. however we are not handover the flats to land owners. We reauest you to clarify the tax calculation on land owners share of flats. is it 1/3rd land abatement scheme available under new rate of 5%.

    kindly clarify the same and help us sir.

    1. MJV SHANKAR says:

      Dear Nagaraja,
      Thanks for reading the article and your query is related to the rate of tax applicable to the flats handover to the landowner….
      In my opinion,
      1. In ur case, OC obtained before 01-04-2019.
      2. Flats handover to land owners after OC.
      3. Therefore, old rate of tax applies, as OC obtained before 01-04-2019, i.e 12% on value after abatement.

  4. klnfca says:

    your article is very informative. I need more clarifications. Can you please give me your contact mobile number. I am also from Visakhapatnam.
    KLNarasimham CA

  5. D K RAAM says:

    Can you please give full information of GST on JDA between land lord and builder.

    The builder is bound to pay GST as RCM for the number of Flats given to land lord on the day of getting Completion certificate.

    Let us say 10 flat are going to start in June’19. 5 Flats to builder and 5 Flats to land owner. Each flat will have 1500 sft SBA. The builder’s 5 flats can be sold at Rs.4000/- per sft market value under agreement with buyers for getting housing loan, I.e. 60 Lakh rupees per flat. Total GST payable for these 5 Flats is 15 Lakhs.

    The SRO base value for registration is Rs.1500/- per sft.

    Now the present query is how much percentage of RCM the builder is bound to pay as GST for the 5 Flats share of land owner. Is this to be applied on market value 4000/- per sft or SRO Value 1500/- per sft.

    1. MJV SHANKAR says:

      Dear DK RAAM thanks for reading the article and your query is related to the following matters:
      1. Rate of GST payable by the builder – either it would be 1% (in case of affordable housing projects) or 5% (in case of other than affordable housing projects), as the case may be.
      2. Applicability of SRO Value??- Value adopted for the purpose of GST computation is only the market value but not SRO value or any other value is adopted, for GST purpose.

  6. ca.c.lakshmipathi says:

    The presentation is detailed and nice. I would like to get clarification on applicability of GST on owners of land under JDA of REP when they take advance from prospective buyers during construction (Owners share.
    thanks and best wishes

    1. MJV SHANKAR says:

      Dear Lakhmipathi mam, Thanks for reading the article and your query is related to the advances received from the buyers, to the landowners during the construction period.
      1. If it is during the construction period, it is deemed that no occupancy certificate is obtained and any amount received before occupancy certificate is liable to GST.
      2. In this case, amount received as an advance by the landlord on sale of flat, is liable to pay GST by the landlord themselves.
      3. Now the landlord is required to take GST registration and pay GST, and after paying the tax liability, cancel the registration if no other business transactions takes place.
      4. Landlord can take input tax credit on the tax amount charged by the builder and then pay GST output tax liabilty.

  7. Alok says:

    Nice Article Sir, My query is, my Real Estate Project which is a Residential Plotted Development where I am the Landowner & Developer both (NO JDA) and we are doing only the Internal Development like Road, Sewerage etc and sells only Plots to customer. Since the Sale is only for Land and the land price includes the development cost, and no seperate amount towards development is shown in Sale Deed, does it attract GST earlier before 01-04-2019 & in the Current Scenerio after 01-04-19 notifications and if yes then what at what rate. Please advice.

    1. MJV SHANKAR says:

      Dear Alok, Thanks for reading the article and following were the observations I made relating to your query ….
      1. Sale of plot only is exempt from GST, as per Schedule-III read with section 7 of CGST Act.
      2. Development services will be classified as Works Contract Services and applicable rate of GST is 18%.
      2. But in your case, the amount charged is for both sale of land and for Works Contract Services. In such scenario, two views can be raised:
      a. Firstly, when two independent supplies made, namely sale of Land and Works Contract Services provided in a single price, it can be treated as “Mixed Supply” and the highest rate of tax is applicable to the whole amount charged i.e at 18%.
      b. Secondly, sale of land is exempt and the Works Contract Services will be chargeable @ 18%.
      3. In my view, best option is to enter two agreements with respect to the sale of Land and Works contract Services separately, and charge 18% on Works Contract Services. Otherwise, there might be a case of treating it as a mixed supply and consequently, charging @ 18% will become mandatory.
      4. This point relates to both pre and post 01-04-19.

    2. MJV SHANKAR says:

      Dear Alok Thanks for reading the article and I made following views to your query
      1. Sale of land is exempt as per Sch-III read with Sec 7 of the CGST act,2017.
      2. Development cost incurred will get classified as Works Contract Services as per Sec 2(119) of the CGST Act.
      3. Sale of land and Provision of Works contract services (WCS) will lead to “Mixed Supply” and chargeable at highest rate of tax @18%.
      4.. Sale of land is exempt and WCS is liable to be taxed @ 18%.
      In my view, best option is to charge 18% seperately on WCS by entering two agreements, one is for land and is for WCS.
      5. Otherwise, you might be liable to pay 18% on the whole amount charged.
      6. This option is applicable for pre and post 01-04-2019

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