1. Transfer of Development Rights means the owner of land allows promoter ( builder ) to develop the land and construct apartments in his land. This is different from Transferable Development Rights. In case of Transferable Development Rights, Government (local authority) gives an instrument to land owner (for surrender of his right) to either use it or sale it.

2. The Government vide Notification No. 04/2019-Central Tax (Rate) on 29-March-2019 added fresh entries 41 A & 41 B to the Notification No 12/2017 – Central Tax (Rate) 28.06 2017 .

3. As per Para 3 of Entry No. 41 A, Maximum Amount of Exemption available for Service by way of transfer of development rights (herein refer TDR) on or after 1st April, 2019 for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or partly shall be :

(GST payable on TDR 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 )

4. The amount of GST exemption available for construction of residential apartments in the project under this notification shall be calculated as provided in Sr Nos. 41A and 41B of Notification No. 12/2017-CT (Rate) dated 28-6-2017.

5. Relevant Provisions As per Entry 41 A of the Notification exempting TDR :

The promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of value of development rights as is attributable to the residential apartments, which remain un-booked on the date of issuance of completion certificate, or first occupation of the project, as the case may be.

[Exempted GST payable on TDR or FSI (including additional FSI) or both for construction of the residential apartments in the project as calculated in above manner] 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 said tax payable under reverse charge shall not exceed 1% of the value in case of affordable residential apartments and 5% 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 provision has been drafted in a very clumsily manner and the calculation involved is confusing. An attempt has been made to simplify the calculation with the help of an illustration.

Illustration:-

A builder named as Mr. B (promoter) entered into agreement with Mr. L (land owner ) for transfer of development rights on 21 May 2019 . Detail of the agreement & project involved is as tabulated below .:-

Sl Description Facts
(a) Agreement date for transfer of development rights 21 May 2019
(b) Development Plan 100 Apartment of 100 Sq M .each
(c) Consideration for granting development rights to builder 40% ( 40 Apartments)
(d) No. of Residential / Commercial Apartments in the project Residential – 70

Commercial – 30

(e) Date of Booking commenced (by the Builder ) 01 June 2019
(f) Rate at the time of booking Rs 75 Lakhs each Apartment
(g) Project completion date 31st May 2022
(h) Rate at the time of Completion Rs 102 Lakhs
(i) No. of Apartments Booked by 31st May 2022 Residential – 40

Commercial – 20

(j) No. of Apartments Unbooked o 31 May 2022 Residential – 30

Commercial -10

6. Steps in calculation

Step 1 ;

GST GST on transfer of development rights attributable residential apartments = GST payable on TDR for construction of the project] × (carpet area of the residential apartments in the project) ÷ (Total carpet area of the residential and commercial apartments in the project) .

The development rights were transferred in 21 May, 2019. (a above)

The booking rate at that time was Rs 75 lakhs. (f above)

Hence, value of supply of service is Rs 50 lakhs (two-third of Rs 75 lakhs).

Since 40 apartments were to be given to land owner, the total value of transfer of development rights – 40 × 50 = Rs 2,000 lakhs.

(i) GST payable on transfer of development rights = 18% of Rs 2,000 lakhs = Rs 360 Lakhs

(ii) Carpet Area of residential Apartment in the project (d*b)=70*100 = 7000 Sq M

(iii) Total Carpet Area of the residential and commercial Apartments in the project (b above) = 100*100=10000 Sq M

GST on transfer of development rights attributable residential apartments :-

GST payable*Residential Area/ Total Area 360*7000/10000 = Rs 252 Lakhs

Step 2 :

GST payable on residential apartments remain un-booked on date of completion = [GST payable on development rights] × (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) – first proviso to Sr Nos. 41A and 41B of Notification No. 12/2019-CT (Rate) dated 28-6-2017 inserted w.e.f. 1-4-2019.

(i) GST payable on development rights ( residential Appt) Rs 252 Lakhs

(ii) Unbooked carpet area of the residential apartments on the date of issuance of completion certificate (30*100) 3000 Sq M

(iii) Total carpet area of the residential apartments (70*100) 7000 Sq M

GST payable on residential apartments remain un-booked on date of completion:

GST on TDR (Residential)* Unbooked Residential Area / Total Residential Area = 252*3000/7000 = Rs 108 Lakhs

Step 3 Maximum limit of GST payable on un-booked residential apartments:

The tax payable under reverse charge shall not exceed 1% of the value in case of affordable residential apartments and 5% 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

Since area of each residential apartment is 100 Sq M, these are residential apartments (other than affordable residential apartments)

The value of un-booked apartments is to be considered on basis of value of similar apartments booked nearest to date of completion. The apartments were booked by promoter for Rs 102 lakhs in May 2022.

Hence, value of the apartment nearest to date of completion is Rs 68 lakhs (two-third of Rs 102 lakhs).

Since 30 residential apartments remained un-booked on date of completion certificate, the value of un-booked apartments = 68 × 30 = Rs 2,040 lakhs

The value nearest to date of completion is Rs 2,040 lakhs (as in above example)

Hence, 5% of Rs 2,040 lakhs is Rs 102 Lakhs

Thus, Maximum amount of GST payable on un-booked residential apartments is Rs 102 lakhs.

7. Exemption available on development rights pertaining to residential apartments which were booked prior to date of completion :-

Exemption available on development rights pertaining to residential apartments which were booked prior to date of completion is A- B = (252 – 102 ) = Rs 150 lakhs

where A = GST on transfer of development rights attributable residential apartments &

B = Maximum limit of exemption

8. GST payable by Builder (Promoter) on transfer of development rights under reverse charge ;

GST payable by Builder (Promoter) on transfer of development rights under reverse charge = (Total GST payable on TDR ) – (Exemption available on TDR pertaining to residential apartments transferred prior to completion certificate)

= (Rs 360 Lakhs – 150 lakhs )

= Rs 210 lakhs

9. Thus, the developer is liable to pay Rs 210 lakhs under reverse charge as GST on transfer of development rights.

The Author can be approached at caanitabhadra@gmail.com

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3 Comments

  1. Gaur Gaur and Associates says:

    while calculating GST and TDR on unbooked residential portion you have applied rate of 5% which is itself 2/3rd of the actual rate prescribed(i.e.3.75+3.75=7.5) and also you have done 2/3rd of the value of the apartment i.e. 2/3X102=68 which in my opinion is wrong . you should either do 2/3rd of the value of the apartment i.e. 102lakhs or the prescribed rate of GST i.e.2/3rd of 7.5%

  2. Sanjesh Kumar says:

    In simple words tax is required to be paid on unbooked residential area subject to capping of 5%/1% value at completion stage of total unbooked residential area.

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