GST on real estate (JDA) – clarity by experienced GST Consultants

Unsure how GST applies to your Joint Development agreement? This post by a RERA Consultant in Udaipur and experienced ca in Udaipur breaks down GST implications on JDAs between landowners and builders.”

JOINT DEVELOPMENT AGGREEMENT

Introduction

Under a joint development agreement, land owner contributes his land and enters into an arrangement with the developer to develop and construct a real estate project at the developer’s cost

The JDA is further detailed by the CA in Udaipur and accordingly it is said

Land cost is contributed by the land owner
cost of development and construction is incurred by the developer

Consideration :-

Land owner may get consideration in the form of either lump sum consideration or percentage of sales revenue or certain percentage of constructed area in the project, depending upon the terms and conditions agreed upon between them.
Builder gets the consideration by selling the certain percentage of constructed area in the project, depending upon the terms and conditions agreed upon between them

Structuring of the JDA

In a joint development agreement various ingredients are incorporated by defining the terms and conditions some of which are as under:-:–

Incurring of Costs

Various cost such as approvals cost from the regulatory authorities, change of land use, external and internal development charges, construction costs , marketing costs , advertisement expenses, brokerage/commission cost , and financial costs, etc. Generally, all such costs are incurred by the developer in the case of joint development arrangement.

Transfer of Land and Executing Power of Attorney

There is no sale deed is executed by the land owner in favour or developer for transfer of title. Only the land is handed over to the developer for the development of the real estate by the owner. Hence, the land owner executes power of attorney in favour of the developer, granting all rights of development, inter alia, includes right of representation and obtaining the permission of various regulatory authorities and hands over the possession of land for the purpose of development and construction, marketing of rights, management responsibility etc.

Sharing of Revenue/Sale Consideration

The land owner may get the sale consideration for the land in different manner, as per the terms decided between both the parties such as:

Refundable/non-refundable security/advance money at the initial stage
Lump sum amount of consideration to be received at different stages
Sharing of sale revenue generated as per mutually agreed ratio
Sharing of constructed/developed area as per mutually agreed ratio
A different combination of all or any of the above.

Clause of Mortgage of Land is also mentioned for getting the funds from the bank.

Termination or Break-down of Agreement the events, reasons, and time period is also mentioned about this clause.

Types of JDA

There are 2 kinds of Joint Development Agreement (JDA) and they are:

Area Sharing – Joint Development Agreement (ASJDA)
Revenue Sharing – Joint Development Agreement ENT (RSJDA)

Area Sharing Joint Development Agreement (ASJDA)

Owner and Builder/Developer agree to develop the Immovable Property for residential/ commercial/ mixed use. Owner and Developer/ Builder agree to share the area developed at a ratio as agreed upon. The area to be shared would be identified post plan sanction and detailed by way of an allocation agreement.

1.1 Transfer of Development Right in JDA (Area sharing) On or after 1st April 2019

GST payable by developer under RCM on development rights relatable to:

Apartments	Taxability
Construction of commercial apartments	Value of Development Rights shall be deemed to be value of similar commercial apartments charged by promoter from Independent buyer nearest to date of transfer of Development Rights or FSI. Tax rate will be 18% thereof – Clause iii of Notification No. 04/2019-CT(R) dated 29.03.2019
Residential apartments remained unsold on completion	Tax payable will be lower of: 18% of DR/TDR/FSI value (as worked out below) attributable to unsold apartments; or5% or 1% of value of unsold apartments Value of Development Rights shall be deemed to be value of similar apartments charged by promoter from independent buyers nearest to the date of transfer of DR/TDR/FSI and monetary consideration paid, if any; Value of unsold apartments shall be deemed to be value of similar apartments charged by promoter nearest to date of completion or first occupation

1.2 GST on Area Allotted to Landowner in JDA (Area sharing) [on or after 1st April 2019]

Developer

Construction of owner’s apartments is a service by developer to landowner which is liable to GST [subject to final verdict of Honorable Supreme Court in case of Vasantha Green Projects where in Hyderabad CESTAT held that service tax is not payable by developer on owner’s area]
Developer shall pay tax on owner’s area at the time of completion certificate or first occupation, whichever is earlier
Notification No. 3/2021-Central Tax (Rate) dated 02.06.2021 allows developer to prepone tax payment on landowners’ area to enable landowner to claim ITC thereof
GST to be paid on the value of total amount charged for similar apartments in the project to independent buyers nearest to the date of transfer of development rights
Developer is liable to GST on sale of under-construction apartments/units at 5% or 1% or 12% subject to conditions mentioned in Notification 3/2019 – CT(R)

1.3 GST on Sale of Owner’s Apartment by Landowner in JDA (Area sharing) on or after 1st April 2019

Landowner is liable to GST on sale of under-construction apartments/units at 5% or 1% or 12%
Developer will charge GST @ 5% or 1% or 12% on apartments allotted to landowner
Developer can pay GST on earlier of date of completion of project or first occupation
Landowner is entitled to input tax credit of GST levied by developer on construction of owner’s flat subject to cap of output tax payable on Residential or commercial apartments (in RREP) sold under construction
If developer pays tax on completion of the project, landowner will not be in a position to avail or utilize ITC Notification No. 3/2021-Central Tax (Rate) dated 02.06.2021 allows developer to prepone tax payment on landowners area
GST in respect of apartments/units remaining unsold in the hands of landowner on the date of OC will become cost to landowner where developer has charged GST on area allotted to him.

1.4 AMENDMENT IN 43rd GST COUNCIL MEETING AND NOTIFICATIONS DT. 02.06.2021

In an Area Sharing Joint Development Agreement:

Landowner transfers development rights of their owned land to Developer, and
Developer develops and construct superstructure inter-ala for the land owner on Landowner’s share of Land.

1.5 GST is chargeable on such construction service provided by Developer to the Landowner.

1.6 Time of Supply:

Until now, GST law provided that Developer is liable to pay GST on construction service provided to landowner in lieu of Development Rights at the time of issuance of Completion Certificate (CC) or first occupation (OC), whichever is earlier.
If Landowner further sell such allotted area (Flats) to other intended buyers before issuance of CC/OC, he is required to raise invoice and charge GST as when payment is due from buyer.

1.7. Accumulation of ITC

Since Landowner has to pay tax as and when payment is due from its buyers, he has to pay tax in Cash (if time of supply arises i.e. payments due from buyers prior to CC).
If Developer raise invoice and charge GST at the time of CC or First Occupancy, it will result into accumulation of ITC in the hands of Landowner.

1.8. GST payable on Saleable Area on or after 1st April 2019

Developer

GST payable on sale of under construction apartments/units at 1% or 5% or 12% as applicable
ITC not available for inputs and input services (including development rights) relatable to residential/commercial units sold at concessional rate of 1% or 5%
Proportionate ITC relatable to under construction commercial units (to be taxed at 12%) is allowable
ITC reversal on unsold commercial units to be done as per Rule 42 and 43:
On area basis; and
For entire project period (excluding pre-GST credit and transitional credit)

2. Revenue Sharing Joint Development Agreement (RSJDA)

2.1 Revenue Share could be on:

Top Line (Sales proceeds/Realization); or
Bottom Line (Project Profit); or
Any other basis

2.2 Taxable events under joint development

Transfer of development rights (TDR) from the landowner to the developer.
Service provided by the developer to the landowner in the form of construction of area or flats in lieu of land development rights given.
Sale of under-construction flats to the ultimate buyer by the developer.
Sale of under construction flats by the landowner to the buyers out of his own share.

2.3. GST Payable by Developer Under RCM on Development Rights in JDA (Revenue sharing) On or after 1st April 2019

Particulars	Taxability
Construction of commercial apartments	GST at 18% will be payable under RCM on actual revenue share paid to landowner
Residential apartments remained unsold on completion	Tax payable will be lower of: 18% of DR/TDR/FSI value attributable to unsold apartments; or5% or 1% of value of unsold apartments Value of Development Rights shall be proportionate revenue share paid to landowner in respect of unsold apartmentsValue of unsold apartments shall be deemed to be value of similar apartments charged by promoter nearest to date of completion or first occupation

2.4 GST on Transfer of Development Rights in JDA (Revenue sharing) on or after 1st April 2019

2.4.1. Landowner

Landowner transfers development rights to Developer
Landowner receives consideration in form of revenue share
Transfer of development rights on or after 01.04.2019 is exempt where it is used for construction of:
residential apartments to be sold before issuance of completion certificate; and
Such apartments are liable to GST
Development rights, TDR, FSI used for following will still be liable to GST:
Construction of commercial premises (to be paid by developer under RCM)
Construction of Residential Complex intended for sale after completion (to be paid by developer under RCM)
Onus is not on landowner to discharge GST on transfer of DR/TDR/FSI/Lease rights on or after 01.04.2019 whether it pertains to residential or commercial construction

2.4.2 GST on Apartments/Units Sold to Ultimate Customers in JDA (Revenue sharing) [On or after 1st April 2019]

2.4 .2 Developer

GST payable on sale of all under construction apartments/units at 5% or 1% or 12% as applicable
ITC not available for inputs and input services (including development rights) relatable to residential/ commercial units sold at concessional rate of 1% or 5%
Proportionate ITC relatable to under construction commercial units to be taxed at 12% is allowable
ITC reversal on unsold commercial units to be done as per Rule 42 and 43:
– on area basis; and
– For entire project period (excluding pre-GST period and transit credit)

This post by a RERA Consultant in Udaipur or GST Consultant in Udaipur breaks down GST implications on JDAs between landowners and builders.”

GST on real estate (JDA) – clarity by experienced GST Consultants

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