Joint Development Agreement (JDA) means an agreement between the Land Owner and the person ( may be in differ names i.e. Builder, Developer, construction company etc.. ) wherein the Land Owner provides land to the builder for the construction of a real estate project. In return for the land provided by the Land Owner, the Builder provides as per agreement that may be:
> Lump sum consideration or
> Percentage of sale revenue or
> Provide share in newly constructed property.
I shall discuss about Area Sharing JDA through this article. To understand the article an example relating to the subject of the article is given as under:
Example – The JDA has been executed between the parties on 02-04-2019. A Land Owner provides the land measuring about 1800 sq.mtr to the Builder to construct Non-Affordable 12 residential flats and 2 commercial shops. The Carpet Area of the commercial shops is less than 15 per cent of the total carpet area of the project, therefore, the project shall fall under Residential Real Estate Project (RREP) according to the Notification – 06/2019 – Central Tax (Rate) dated 29-03-2019. According to sharing areas settlement clause, the Land Owner shall get 6 built-up residential flats and 1 shop in lieu of consideration towards Transfer of Development Rights and balance 6 residential flats and 1 shop shall be kept by the Builder.
On the basis of the above example following points are to be discussed :
A. What are the Supplies under the project ?
B. Considerations for the Supplies specified in clause A
C. Rate of Tax against Supplies with effect from 01-04-2019
D. Valuation of Services Supplied under the project
E. Time of Supply
F. Reverse Charge Mechanism for any Supply under the project
G. Input Tax Credit
H. Calculation of Output Tax Liability and comparison between output tax liability against project sold before completion certificate and output tax liability against project not sold before completion certificate.
A. What are the Supplies under the project ?
1. Supply of Development Rights by the Land Owner to the Builder;
2. Supply of Construction Services by the Builder to the Land Owner;
3. Supply of Construction Services towards own share of Proposed Residential Flats and One Shop by the Land Owner and
4. Supply of Construction Services towards own share of Proposed Residential Flats and One Shop by the Builder.
B. Considerations for the Supplies specified in clause A
| S.No. | Supply | Consideration |
| 1 | Supply of Development Rights by the Land Owner to the Builder | Constructions services for six residential flats and one commercial shop exchanged by the Builder |
| 2 | Supply of Construction Services by the Builder to the Land Owner | Supply of Development Rights exchanged by the Land Owner |
| 3 | Supply of Construction Services towards own share of Proposed Residential Flats and One Shop by the Land Owner | Transaction value as settled with the consumer |
| 4 | Supply of Construction Services towards own share of Proposed Residential Flats and One Shop by the Builder | Transaction value as settled with the consumer |
C. Rate of Tax against Supplies with effect from 01-04-2019
1. Rate for Transfer of Development Rights –
Rate for TDR services is 18 % except rate on such service is NIL with condition as notified vide Notification No. 04/2019 – Central Tax (Rate). The Notification is reproduced as under:
| ( 1) | ( 2 ) | ( 3 ) | ( 4 ) | ( 5 ) |
| 41A | Heading 9972 | Service by way of transfer of development rights (herein refer TDR) or Floor Space Index (FSI) (including additional FSI) on or after 1 st April, 2019 for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
The amount of GST exemption available for construction of residential apartments in the project under this notification shall be calculated as under: [GST payable on TDR or FSI (including additional FSI) or both for construction of the project] x (carpet area of the residential apartments in the project ÷ Total carpet area of the residential and commercial apartments in the project ) |
NIL | Provided that the promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of value of development rights, or FSI (including additional FSI), or both, as is attributable to the residential apartments, which remain unbooked on the date of issuance of completion certificate, or first occupation of the project, as the case may be, in the following manner –
[GST payable on TDR or FSI (including additional FSI) or both for construction of the residential apartments in the project but for the exemption contained herein] x (carpet area of the residential apartments in the project which remain un- booked on the date of issuance of completion certificate or first occupation ÷ Total carpet area of the residential apartments in the project) Provided further that tax payable in terms of the first proviso hereinabove shall not exceed 0.5 per cent. of the value in case of affordable residential apartments and 2.5 per cent. of the value in case of residential apartments other than affordable residential apartments remaining un- booked on the date of issuance of completion certificate or first occupation The liability to pay central tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise on the date of completion or first occupation of the project, as the case may be, whichever is earlier. |
2. Rate for Construction Services for Non Affordable Residential Projects and construction services for shops fall under RREP Project –
2.1 2.5 percent each under CGST and SGST Act on total value i.e. value including share of land. Otherwise rate specified in Notification 11/2017-CT (Rate) is 3.75 percent each under the Act. For example total cost of the apartment is Rs.60 lakh, tax @ 5% is Rs.3 lakh. If deduct the 1/3rd value of land from the total value Rs.60 lakh i.e. Rs.40 lakh and then calculate tax @ 7.5% on 40 lakh which is also be Rs.3 lakh.
D. Valuation of Services Supplied under the project
1. Valuation of TDR services –
According to para 1A of the NOTIFICATION NO. 12/2017-CENTRAL TAX (RATE) inserted vide notification no. 4/2019 – CT (Rate) “Value of supply of service by way of transfer of development rights or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.”
2. Valuation of Unbooked flats –
According to para 1A of the NOTIFICATION NO. 12/2017-CENTRAL TAX (RATE) inserted vide notification no. 4/2019 – CT (Rate) “Value of portion of residential or commercial apartments remaining un-booked on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartments charged by the promoter nearest to the date of issuance of completion certificate or first occupation, as the case may be.”
3. Valuation of construction services, supplied by the builder or by the land-owner, of their respective shares –
Value of such services shall be transaction value or determined according to section 15 of the CGST Act.
4. Valuation of construction services supplied by the Builder to the land-owner in lieu of consideration towards Transfer of Development Rights –
According to question no.26 the FAQ dated 14-05-2019 – Value of construction services provided by the promoter to land owner in such cases shall be determined based on the total amount charged by the promoter for similar apartments in the project from independent buyers, other than the land owner, nearest to the date on which such development right etc. is transferred to the. promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 of Notification No.11/2017-CT(R) dated 28.06.2017
E. Time of Supply
1. Time of supply of TDR services –
According Notification No. 06/2019-Central Tax (Rate) dated 29-03-2019, the time of supply for TDR services shall arise on the date of issuance of completion certificate for the project, where required, by the competent authority or on its first occupation, whichever is earlier.
2. Time of supply of construction services supplied by the Builder to the Land-Owner –
In such case the time of supply shall arise on the date of issuance of completion certificate for the project, where required, by the competent authority or on its first occupation, whichever is earlier.
3. Time of supply for construction services, supplied by the builder or by the land-owner, of their respective shares –
Provisions of section 13 shall prevail on these transactions. The main gist of this section is that time of supply of service shall be the earliest date between date of receipt of the payment or date of issue of invoice if the same is issued within the period prescribed under section 31.
F. Reverse Charge Mechanism for any Supply under the project
TDR (Transfer of Development Rights) services fall under the Reverse Charge Mechanism. According to Notification No. 07/2019- Central Tax (Rate) dated 29-03-2019. Tax shall be paid by the builder being a recipient on TDR services supplied by any person.
G. Input Tax Credit
The detailed analysis in respect to the Input Tax Credit shall be available in article “Real Estate & Joint Development Agreement under GST” published in Taxguru.in. The link of this article is https://taxguru.in/goods-and-service-tax/real-estate-joint-development-agreement-gst.html.
H. Calculation of Output Tax Liability and comparison between output tax liability against project sold before completion certificate and output tax liability against project not sold before completion certificate.
| Tax Payable Liability upon the Builder | |||
| Liability for payment of Tax shall be the equal to the tax calculated on total selling value of the project even if all project had not been sold out before completion certificate | |||
| Case Number 1 | |||
| 1 | Date of JDA | 01/04/2019 | |
| 2 | Date of Completion Certificate | 30/08/2020 | |
| 3 | No.of Flats | 20 | |
| 4 | Land Owner Share | 10 | |
| 5 | Builder Share | 10 | |
| 6 | Cost of Flat per flat | 5000000 | |
| 7 | Rate of GST | 5% | |
| 8 | Total Value of Flats = ( S.No.3 * S.No.6 ) | 100000000 | |
| 9 | Output Tax Liability = ( S.No.8* S.No.7 ) if all flats sold before completion certificate | 5000000 | |
| 10 | Flat Sold before Completion Certificate | ||
| 11 | By the Builder | 6 | |
| 12 | By the Land Owner | 0 | |
| 13 | Unsold Flats till Completion Certificate | ||
| 14 | By the Builder | 4 | |
| 15 | By the Land Owner | 10 | |
| 16 | TDA value (S.No.6 * S.No.4) | 50000000 | |
| 17 | Tax Payable on TDA Value @18% | 9000000 | |
| 18 | Tax Payable of TDA on unbooked area (2 lakh * 18%) | 3600000 | |
| 19 | Tax Payable on unbooked flats @5% | 1000000 | |
| 20 | Maximum Payable amount on unbooked Flats (maximum payable amount shall not exceed 5%) | 1000000 | |
| 21 | Tax Payable on construction services supplied by the builder to the Land-Owner @ 5% | 2500000 | |
| 22 | Tax Paid before completion certificate on sold flats | 1500000 | |
| 23 | Total Paid (20+21+22) | 5000000 | |
| 24 | Difference between (23 – 9) | 0 | |
| Tax Payable Liability on Builder | |||
| Calculation with Commercial Property | |||
| Case Number 2 | |||
| 1 | Date of JDA | 01/04/2019 | |
| 2 | Date of Completion Certificate | 30/08/2020 | |
| 3 | No.of Flats | ||
| 3.1 | Residential | 12 | |
| 3.2 | Commercial | 2 | |
| 4 | Land Owner Share | ||
| 4.1 | Residential | 6 | |
| 4.2 | Commercial | 1 | |
| 5 | Builder Share | ||
| 5.1 | Residential | 6 | |
| 5.2 | Commercial | 1 | |
| 6 | Cost of Flat | ||
| 6.1 | Residential per flat | 5000000 | |
| 6.2 | Commercial per shop | 10000000 | |
| 7 | Rate of GST | 5% | |
| 8 | Total Value of Flats = ( S.No.3.1 * S.No.6.1+3.2*6.2 ) | 80000000 | |
| 9 | Output Tax Liability = ( S.No.8* S.No.7 ) if all flats sold before completion certificate | 4000000 | |
| 10 | Flat Sold before Completion Certificate | ||
| 10.1 | By the Builder – Residential only | 4 | |
| 10.2 | By the Land Owner | 0 | |
| 11 | Unsold Flats till Completion Certificate | 10 | |
| 11.1 | By the Builder ( 2 residential + 1 commercial ) | 3 | |
| 11.2 | By the Land Owner ( 6 residential + 1 commercial ) | 7 | |
| 12 | TDA value {( S.No.4.1*6.1)+(4.2 * 6.2)} | 40000000 | |
| 13 | Tax Payable on TDA Value @18% ( 12*18% ) | 7200000 | |
| 14 | Tax Payable of TDA on unbooked residential flats ( 10000000*18%) | 1800000 | |
| 15 | Tax Payable on unbooked residential flats @ 5% | 500000 | |
| 16 | Tax Payable on unbooked commercial flat @ 18% | 1800000 | |
| 17 | Tax Payable on construction services supplied by the builder to the Land-Owner @ 5% on 40000000 | 2000000 | |
| 18 | Tax Paid before completion certificate on sold flats by the Builder ( 20000000 *5% ) | 1000000 | |
| 19 | Total Paid at the time of completion (15+16+17+18) | 5300000 | |
| 20 | Difference between ( 19 – 9 ) | 1300000 | |
| 21 | Difference due to TDA paid on commercial @ 18% as it is 5% on residential property | ||
To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is [email protected].
Author Bio
Very informative. One question,sir.
Whether all flats are booked or not on the date of receiving completion certificate, builder/parties has to pay entire amount of GST by that time ? Am I right ?
Good