GST Impact on Joint Development agreement:
In a Joint Development Agreement (JDA) the Landowner and a Builder would agree to develop the land owned by the landowner, into a complex and an agreed number of flats would be handed over to the landowner and the remaining flats would be sold to various buyers by the builder. The builder would sell his share of flats, along with proportionate undivided share of land (UDS) and retain the sale proceeds.
Here, the question is whether GST will be attracted on Joint Development Agreement? Or there are some transaction on which GST will not attracted?
In the following way there can be 1 or 2 agreements are as follows:
- Two agreements: one is for sale of land i.e. UDS & one is for construction agreement.
- Single agreement: Both sale of land & construction on land under the same agreement
GST Implication on first transaction:
Before moving ahead, one may understand following basic terms:
- Supply includes Exchange, it means JDA will fall under supply definition and will be liable to pay GST on the transaction.
- According to Schedule 3,
– Sale of Land &
– Sale of building after completion, these transactions are not in the ambit of GST. It means some part of JDA will be excluded from GST, on which no GST is attracted.
- According to Schedule 2,
- If Consideration has been received after receiving completion certificate from the competent authority or 1st occupancy in the building and the flats to be transferred are not recognized till the transfer, then No GST is applicable and the proportional ITC to be reversed.
- If property is sold before getting completion certificate from the competent authority or the 1st occupancy then GST will be applicable.
- If the flats are recognized at the time of entering the JD agreement even if the facing of the apartment, then it is the consideration for the development rights and this attracts the GST.
For the purpose of better understanding let us take an example, share of land owner 40% and developer 60%
Various Transactions under JDA & GST Implications on such transaction:
- Transaction of Land owner:
Transfer of development rights by Land owner to developer, such transaction is covered under Schedule III item and hence no GST due to sale of immovable property.
- Transaction of Developer to Land Owner:
Developer sells the flats to Land owner over a period: GST is applicable
Time of supply: Continuous supply: Stage of completion of supply + Advances if any
- Receiving of land is in the form of advance received and hence GST needs to be paid as on the date of entering into JDA
- Value of supply:
- Open market value
- 60% of UDS in our example + Non-refundable deposit
- Like value of similar goods
- Cost + 10%.
- Rate of Tax: There is no Sale of Land, hence deduction of 1/3rd towards Land doesn’t arise. Hence Value of Supply x 18% is the tax rate.
- Transaction of Developer– End Customer: As discussed above GST is applicable and rate and method as mentioned above.
- Transaction of Land owner to customer: Sale of Flats during construction will be liable to GST and the Land owner will have to pay GST at the rate 12%.
- If Developer retained units: If after issuance of Certificate of Completion or 1st occupancy then not liable to GST. But input credit proportionately needs to be reversed.
- If Land owner retained units: Similar as above point 5.
GST Implication on second transaction means if there is single agreement:
- Sale of Land: The Sale agreement entered between the land owner, the developer & the purchaser is for share in undivided land, such transaction is outside the scope of GST. Hence no GST is payable.
- Construction agreement: Any construction of a property by a developer for a purchaser amounts to ‘Works Contract’ and accordingly, the subject transaction will be taxable under the GST laws.
It is the same transaction as discussed above & ‘Taxability’, ‘Place of Supply’, ‘Time of Supply’, ‘Input Tax Credit’, ‘Valuation’ etc., will be remain same.
By- Monika N Rathi