Joint Development Agreements & chargeability of GST on them are known for their complexity. Therefore, in this article, we will cover each and every aspect of the Joint Development Arrangement from GST Perspective in a very simplified manner using illustrations.
In Joint Development Agreement, Land Owner hands over the Land to the Builder/Developer for construction of Apartments (Residential/Commercial). After Construction of Apartments, some apartments are handed over to the Land owner (as per mutual terms) and rest of apartments are kept by the Builder/Developer.
Lets/ Take the Illustration
Mr. Ram hands over 1 Acre of Land for development to Shyam Ltd (Builder) on 01.04.2020 Shyam Ltd will construct 10 apartments (6 Residential and 4 Commercial) on the Land.
Out of 10 apartments, 5 Apartments (3 Residential and 2 Commercial) will be handed over to the Ram and Rest will be kept by the Shyam Ltd. Then both Mr. Ram and Shyam Ltd. will sale their respective apartments to the independent buyers.
For better understanding of the various issues involved, we have divided the complete chain of transaction involved in Joint Development Arrangements, into four different supplies/taxable events which are as follows:
Now we will discuss each of the Taxable Events with complete details including Time of Supply, Valuation of Supply, Rate of GST, Exemption etc.
Supply of Development Rights by Land owner (Mr. Ram) to the Shyam Ltd. (Builder)
Time of Supply
As per Notification No. 06/2019-CT(Rate) dated 29 March, 2019, Time of Supply (Time when GST needs to be discharged) for Supply of Development Rights by Landowner to Builder will be Date of issuance of Completion Certificate by the Competent Authority for the project or on its first occupation whichever is earlier.
Note: As per clause 5(b) of Schedule-II read with Schedule-III, where entire consideration is received after Date of issuance of Completion Certificate by the Competent Authority for the project or on its first occupation whichever is earlier, is not subject to GST.
Under Forward Charge or Reverse Charge Mechanism
As per Notification No. 5/2019-Central Tax (Rate), Supply of Development Rights are under RCM i.e. Builder/Promoter (Shyam Ltd.) needs to pay GST on this service at the time of Date of issuance of Completion Certificate by the Competent Authority for the project or on its first occupation whichever is earlier.
Availability of Exemption & Payment of GST with illustrations
As per Notification No. 4/2019-Central Tax (Rate) dated 29 March, 2019, Exemption is available for Supply of Development Rights to the extent of construction of Residential Apartments sold (i.e. some consideration received) till the date of issuance of Completion Certificate or first occupation which ever is earlier.
Here are two conditions:
Only for Residential Apartments
That is also for the Apartment for which consideration is received before completion certificate or first occupation which ever is earlier (Logic is that GST should be chargeable on such flats).
Method of Calculation of Exemption
Value of Exemption = GST Payable on Transfer of Development Rights * Carpet Area of Residential Apartments in the Project/Total Carpet Area of the Project
Here Value of TDR will be calculated based on value of similar Apartments near the date of transfer of TDR.
In case, some residential apartments are not sold till completion certificate or first occupation as the case may be then, lower of following amount needs to be paid by the Promoter/builder:
Value of Exemption (as calculated in Step-1)* Carpet Area of Residential Apartments remains unsold/Total Carpet Area of Residential Apartments in the Projects, or
1% of value of Affordable Residential Apartments or 5% of other Residential Apartments remains un-sold. (Here Value of Residentials Apartments will be calculated based on value of similar apartment near to the date of completion certificate or occupancy certificate as the case may be.
Carpet Area of Commercial Apartment
2000 Sq. Ft
Carpet Area of Residential Apartment
1000 Sq. ft
Total Number of Residential Apartments
6 (3 will belong to Land owner i.e. Ram)
Total Number of Commercial Apartments
4 (2 will belong to Land Owner i.e. Ram)
Value of Residential Apartment as on date of transfer of TDR (i.e. 01.04.2020)
Value of Residential Apartment as on date of Completion Certificate (i.e. 31.03.2023)
1. 5 Crores
Value of Commercial Apartment as on date of transfer of TDR (i.e. 01.04.2020)
Value of Commercial Apartment as on date of Completion Certificate (i.e. 31.03.2023)
Residential Flats remains unsold as on 31.03.2023
Commercial Apartment remains unsold as on 31.03.2023
GST Payable on TDR = Value of Ram Share as on date of transfer of TDR *18%
= (1Crores*3+2Crores*2)*18% = 90 Lakhs
Exemption Available= 90 Lakhs*6000 Sq. Ft/14000 Sq. Ft
= 38.57 Lakhs
Tax Payable (A) = 90 Lakhs- 38.57 Lakhs= Rs. 51.43 Lakhs
Tax on unsold Flats
38.57 Lakhs* 2000 Sq.Ft (Carpet area of unsold Res. Apart)/6000 Sq. Ft (Total Carpet Area of Residential Apartments) = 12.86 Lakhs
2. GST on Value of Unsold Residential Apartments= 2*1.5 Crores*5%= 15 Lakhs
which ever is lower (B) i.e. Rs. 12.86 Lakhs
So, Total Tax Payable by Builder/Promoter i.e. Shyam Ltd. under RCM (A+B) = 51.43 Lakhs+ 12.86 Lakhs= 64.29 Lakhs
Whether ITC will be available on this RCM
Shyam Ltd. will be eligible for ITC to the extent used for Commercial Apartments sold till date of completion (as Project is Real Estate Project not Real Estate Residential Project). For complete details, please read at ................
Supply of Construction Service by Shyam Ltd. to Mr. Ram in respect of constructed apartments pertaining to share of Mr. Ram.
Time of Supply
As per Notification No. 06/2019-CT(Rate) dated 29 March, 2019, Time of Supply (Time when GST needs to be discharged) for Supply of Construction Service by Builder/promoter to Landowner will be the Date of issuance of Completion Certificate by the Competent Authority for the project or on its first occupation whichever is earlier.
Under Forward Charge or Reverse Charge Mechanism
Under forward charge by the Promoter/Builder.
Value of Supply
Value of such apartments nearest to the date of transfer of TDR.
In above illustration, Value of Construction Service
Residential Apartments= 3 Apartments* 1Crores= 3Crores
Commercial Apartments= 2 Apartments * 2 Crores= 4 Crores
Rate of Tax and Payment of Tax
As per N.No. 3/2019 C.Tax (Rate), Rate of GST is as follows:
GST Rate Table
Real Estate Project (where Carpet Area for Commercial Apartments is more than 15%)
Real Estate Residential Project (where Carpet Area for Commercial Apartments is up to 15%)
Affordable Residential Apartment
1% (adjusting 1/3 value for Land)
For Complete details including other restrictions and conditions of N.No. 3/2019, please read at ........
In Present illustration since Carpet area of Commercial Apartments is more than 15%, Rate of GST for Commercial Apartments will be 12%.
Accordingly, GST payable by Builder/Promoter on Construction Service is
Residential Apartments = 3 Crores *5% = 15 Lakhs
Commercial Apartments = 4 Crores * 12% = 48 Lakhs
Whether ITC will be available against to the Land owner on this construction Service
Yes ITC will be eligible to the Land owner i.e. Mr. Ram subject to the condition that
a. Such Apartments are sold before issuance of Completion Certificate/Occupancy Certificate as the case may be.
b. Taxes paid by Landowner on supply of these Apartments is not less than ITC availed.
Supply of Construction Service by Builder (Shyam Ltd.) in respect of apartments sold to independent buyers.
It will be taxable as per the normal provisions of law except when entire consideration is received after date of issuance of Completion Certificate or date of first occupation as the case may be.
Time of Supply
Time of Supply will be determined as per Section 13 read with Section 31 as applicable to continuous Supply of service (Generally at the time of Completion of milestone linked to payment installments as prescribed in the agreement or date of receipt of payment which ever is earlier).
For Complete details please read at .....
Rate of GST
As being shown in GST-Rate Table above.
Supply of Construction Service by Land Owner (Mr. Ram) in respect of apartments sold to independent buyers.
There was an issue which was raised by the Landowners that GST should not be leviable when they sale their share of apartments to the independent buyers on the following two grounds:
That GST has already been paid by the Promoter/Builder on these flats.
Landowner is not in the business of construction service so he should not be chargeable to GST for construction service.
However, such arguments does not appear to be sustainable in the eyes of law as:
Builder has paid the GST on such flats as supplier of Construction Service to the Land-owner, however, in this case, Landowner is providing construction service to the Independent buyers.
Definition of Business is very wide and further he has availed the construction service from Builder and has further supplied the same to the Independent buyers.
Even N.No.3, prescribed that Landowner can avail the ITC of the construction service provided by the Builder to him subject to the condition that he has sold such apartments before completion date and paid taxes more than ITC availed.
The same views has been upheld by the AAR which can be read at Gst-is-chargeable-on-land-owner-for-sale-of-flats-received-from-developer-under-jda.
Accordingly, Landowner needs to pay GST at the time of Supply of these apartments to the independent buyers except entire consideration is received after date of issuance of Completion Certificate or date of first occupation as the case may be.
Provisions of Taxability, Rate of GST, Time of Supply will be same as discussed above in case of Supply of Apartments by Builder to Independent buyer.
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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.