Understanding Goods and Services Tax on Joint Development Agreements

Goods and Services Tax (GST) is levied at 18% on the contractual value of a Joint Development Agreement (JDA). A JDA represents a legal arrangement where a landowner provides their property for construction, and a real estate developer undertakes the building activities. This article explores the tax implications, applicable Service Accounting Codes (SAC), and Input Tax Credit (ITC) eligibility concerning JDAs under GST.

Scope of Taxation for Joint Development Agreements under GST

Upon project completion, the developer conveys possession of the constructed units to the landowner via an allotment letter or conveyance deed. Landowners are typically liable for an 18% GST on the joint development agreement. GST application in JDAs varies based on three primary transaction types: the landowner's transfer of development rights to the developer (partially or fully as construction service), the developer's provision of construction services to the landowner (partially or fully as development rights transfer), and the sale of developed units by either the developer or landowner.

The tax implications for Joint Development Agreements are examined across these three scenarios, beginning with the transfer of development rights by the landowner.

For Transfer of Development Rights by Landowner

For Residential Projects

For residential projects, the GST treatment for transferring development rights depends on the agreement date. For JDAs executed before March 31, 2019, landowners were required to pay 18% GST. The taxable value was determined by Rule 27 of the CGST Rules and Section 15 of the CGST Act, 2017, with payment due upon the transfer of possession of the constructed building. For instance, on a property valued at ₹1,00,000, the GST payable was ₹18,000.

Conversely, for agreements made on or after April 1, 2019, the developer is responsible for discharging GST under the reverse charge mechanism. The rates are 1% for affordable housing and 5% for non-affordable housing. The developer pays GST at the applicable rate on the development rights' value for residential apartments that remain unbooked as of the completion certificate issuance date or the first occupation date (whichever comes earlier). This value is calculated as: Value = (GST payable on developmental rights * carpet area of unbooked apartments) / total apartment area. The tax due must not exceed 0.5% or 2.5% of the value of the remaining unbooked apartments, payable at the first occupation or completion date, whichever is earlier. For example, an affordable residential property worth ₹20,000 would incur a 1% GST, or ₹200, payable at the specified earlier date.

For Commercial Projects

In commercial projects, regardless of whether the JDA was signed before or after March 2019, the landowner must pay 18% GST on the transfer of development rights. The taxable value is determined in accordance with CGST Rule 27 and Section 15 of the CGST Act. For instance, on a commercial building valued at ₹10,00,000, the landowner would be liable for ₹1,80,000 in GST, with the rate remaining consistent across both periods.

Transfer of Construction Services by Developer to the Landowner

This section details the GST implications when a developer provides construction services to a landowner within a Joint Development Agreement framework.

For Residential Projects

For residential projects, developers incurred 12% GST on construction services for agreements predating March 2019. The taxable value was ascertained per Section 15 of the CGST Act and CGST Rule 27. Under the old scheme, a developer would pay ₹12,000 GST on a ₹1,00,000 building.

For agreements on or after March 2019, developers pay 1.5% GST for affordable properties or 7.5% for non-affordable properties. This is based on the service's value, which is determined by the amount charged to independent buyers. Tax liability arises upon the project's first occupation or completion date, whichever is earlier. For instance, a non-affordable property valued at ₹50,00,000 would attract ₹3,75,000 in GST at 7.5%.

For Commercial Projects

For commercial projects, developers are liable for 12% GST on construction services provided to landowners, both before and after March 2019. The value of supply is determined by Section 15 of the CGST Act, coupled with CGST Rule 27, with payment due on the date of possession transfer via a conveyance deed. Post-March 2019, the 12% GST rate remains, but the service value is based on charges to independent buyers closest to the JDA. The tax liability is triggered by the project's first occupation or completion date, whichever occurs earlier. For example, a commercial property valued at ₹1,00,00,000 would incur ₹12,00,000 in GST, with the final GST amount contingent on the service's determined value.

Normal Sale of Developed Area by the Landowner to Developer

This section covers the GST implications when a landowner sells a developed area to a developer.

Before March 2019

For transactions before March 2019, the value was determined by Section 15 of the CGST Act, 2017. A 12% GST was applicable on the supply's value, payable on the earlier of the invoice or payment date.

After March 2019

Post-March 2019, the transaction value is still governed by CGST Section 15. GST rates vary: 1.5% for affordable properties, 7.5% for non-affordable properties, or 12% on the transaction value, whichever is applicable. The tax is due on the invoice date or payment date, whichever is earlier. For example, an affordable property valued at ₹10,000 would attract 1.5% GST, amounting to ₹150, a significant reduction from the ₹1,200 (12%) payable before March 2019.

GST on Joint Development Agreements and SAC Codes

This section outlines the Goods and Services Tax rates and Service Accounting Codes (SAC) relevant to various Joint Development Agreement categories.

Availability of Input Tax Credit (ITC)

The following table details the availability of Input Tax Credit (ITC) for different transaction types within a Joint Development Agreement.

Frequently Asked Questions (FAQs)