The Joint Development Agreements concern two or more parties developing a property. The tax implications of these agreements can be complex, and it’s essential to understand how GST applies to them. This article will delve into crucial aspects of GST related to Joint Development Agreements (JDAs), covering tax liability, input tax credits, and its implications for the parties involved. Stay informed and make informed decisions by staying tuned for the insights in this article.
What is JDA?
A Joint Development Agreement (JDA) is a contractual arrangement between a landowner and a real estate developer to collaborate on a project on the landowner’s property. The real estate developer undertakes the construction of the building and associated infrastructure, while the landowner contributes the land itself. JDAs can be categorized into two main types:
- Area Sharing Joint Development Agreement (JDA)
- Revenue Sharing Joint Development Agreement (JDA)
Taxation of JDA under GST
Upon the completion of property construction, the developer transfers the building’s possession to the landowner through an allotment letter or a conveyance deed. In a Joint Development Agreement (JDA), the landowner is liable for an 18% Goods and Services Tax (GST).
GST applies to three primary types of transactions within each JDA:
- When the landowner transfers development rights to the developer, wholly or partly, it often involves construction services.
- When the developer conveys construction services to the landowner, whether wholly or partly, this often involves the transfer of development rights as part of the Joint Development Agreement (JDA)
- The sale of the developed area by either the developer or the landowner
GST for Transfer of Development Rights by the Landowner
Residential Projects
The developer must pay GST at the applicable rate on a reverse charge basis. The GST is calculated based on the value of the development rights for residential apartments. This calculation takes into account only unbooked flats up to the earlier of the completion certificate date or the occupancy of the first apartment.
The payable tax should be at most 0.5% or 2.5% of the value of the remaining unbooked. apartments. This tax is due on the date of the first occupation of the apartment or the date of completion, depending on which occurs earlier.
- For agreements made before March 31, 2019, the landowner is required to pay an 18% GST. The GST calculation is based on the value determined according to Rule 27 of the CGST Rules and Section 15 of the CGST Act of 2017. The applicable tax should be paid on the date when possession of the constructed building is transferred.
- For agreements made on or after April 1, 2019, the responsibility for GST payment shifts to the developer under the reverse charge mechanism. In such cases, a GST rate of 1% applies for affordable housing, while a 5% rate is applicable for non-affordable housing.
Commercial Projects
Regardless of whether the agreement was signed before or after March 2019, when the landowner transfers development rights for commercial projects, an 18% GST is applicable. The value on which GST is calculated is determined as per CGST Rule 27 and Section 15 of the CGST Act.
For instance, if the value of a commercial building is Rs.10,00,000, the landowner must pay 18% GST, which amounts to Rs.1,80,000. The GST rate remains consistent, regardless of whether the agreement was executed before or after March 2019.
Transfer of Construction Services from Developer to Landowner
Residential Projects
- Before March 2019: The developer must pay 12% GST for this transaction. The valuation for GST is computed per Section 15 of the CGST Act and CGST Rule 27. The GST rate remains 12% if the developer opts for the previous scheme. However, under the new scheme, the applicable GST rate is 1.5% for affordable housing and 7.5% for non-affordable housing.
- On or After March 2019: The developer must remit 1.5% GST for affordable properties or 7.5% for non-affordable properties, calculated based on the consideration received from the independent buyer. This tax obligation is triggered on the earlier of the first occupation of the project or the completion date.
Commercial Projects
- Before or After 2019: Regarding construction services the developer provides to the landowner for commercial projects, the developer must pay 12% GST. The valuation of the supply is determined by Section 15 of the CGST Act, in conjunction with CGST Rule 27. The payment is due on the date of possession transfer through a conveyance deed.
- After March 2019: The developer still pays 12% GST in this scenario. The service’s value is ascertained based on the charges to independent buyers near the Joint Development Agreement (JDA). The liability to pay arises on the project completion date or its first occupation, whichever is earlier.
Normal Sale of Developed Area by the Landowner to the Developer
- Before March 2019: The transaction value is determined in accordance with Section 15 of the CGST Act 2017. GST payment is required on the earlier of the invoice date or the payment date, at a rate of 12% GST on the value of the supply.
- After March 2019: The transaction value is determined based on CGST Section 15. The GST rates are 1.5% for affordable properties, 7.5% for non-affordable properties, or 12% on the transaction value. Payment is due on the earlier of the invoice or payment date.
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Conclusion:
The taxation of Joint Development Agreements (JDAs) under GST in India is a multifaceted topic that involves various transactions and rules. Understanding the tax implications of JDAs is essential for landowners and real estate developers, as it determines their respective GST obligations. Whether the JDA involves residential or commercial projects, the timing of the agreement’s execution, or the specific transaction within the JDA, the GST rules provide clear guidance. These rules help ensure that the tax treatment aligns with the evolving landscape of real estate development in India, offering transparency and consistency in the tax regime. As the real estate sector grows, understanding GST in JDAs becomes increasingly essential for all parties involved.
Also Read: How to Calculate GST on Property Purchase?
Frequently Asked Questions(FAQs)
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Do development agreements attract GST in India?
Yes, development agreements in India are subject to GST, and the applicable GST rate can vary between 1% and 18% based on the nature and type of the project.
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What is the GST rate for the transfer of development rights in residential projects before March 2019?
Before March 2019, landowners were required to pay an 18% GST on the transfer of development rights in residential projects.
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Is GST applicable on Joint Development Agreements?
Yes, GST becomes applicable on JDAs. Tax comes at a time when there is a transfer of development rights from landowner to developer. The nature of supply—whether it is a supply of services or goods—and the time of supply form the crux in relation to GST implications.
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How is the value of supply determined in a JDA for GST purposes?
Therefore, the value of supply in JDA is the total amount of consideration payable or paid for the services rendered by the developer to the landowner. This might even include an increase in some part of the property (e.g., apartment rentals) that would be given to the landowner. Valuation is complex in nature; it may be in the form of estimating the fair market value of services received.
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What are the GST rates applicable to JDAs?
GST would then be levied in respect of the types of property to be developed under JDAs (residential, commercial, etc.), and also the services to be provided.
In general, the construction services in the landowner by the developer attract GST at a rate of applicable to the construction services and need to be checked from the latest GST rate notifications.
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Who is liable to pay GST in a Joint Development Agreement?
Normally, in a JDA, the developer shall be liable to make payment for GST on the construction service provided to the landowner. But the payment of GST can be contractually agreed and sometimes shift to the landowner, depending upon the terms of the agreement.
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When should GST be paid on JDAs?
Time of supply in JDAs for GST purposes is another important aspect. In general, GST becomes payable at the occurrence of the time of supply, which can be the occurring of certain milestones or events defined in the agreement, for instance, transfer of possession of constructed units to the landowner.
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Are there any exemptions or concessions available under GST for JDAs?
There are certain exemptions or concessions under GST to JDAs: affordable housing projects or special schemes promoted by the government. Those shall be studied in light of current applicable GST laws and notifications.
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What documentation is required for compliance with GST on JDAs?
The compliance in JDAs largely becomes an exercise in documentation. This largely includes the documentation exercise to be undertaken for such compliance in JDAs: the agreement itself, details of land and development rights transferred, invoices for the supply of services, GST returns, among all other relevant contracts or documents. Proper documentation in such cases is very important for the purpose of determination of tax liability and audits.
