GST on Joint Development Agreement (JDA)

Introduction

• Part of Learn from Home series, focusing on GST implications due to changing circumstances like COVID-19.
• Specifically looking at GST implications on JDA, updated from 1.04.2019.
• Focus on transactions post this date.

Types of Development Agreements

• Parties Involved: Landlord and Developer.
• Types:
  • Revenue Sharing: Money from sales (flats/shops) goes to the landlord.
  • Area Sharing: Division of flats between landlord and builder.
  • Mixed: Combination of revenue and area sharing.
• Property Types:
  • Pure residential
  • Pure commercial
  • Mixed (part residential, part commercial)
  • Residential properties further divided into affordable and non-affordable housing.

Key GST Considerations

• Scope of Supply: Defined under Section 7 of CGST Act, includes barter, exchange of goods/services.
• Supply of Services: Transfer of development rights (land) can be taxed.
• Exemptions and Notifications: Specific notifications clarify taxability, e.g., Notification 4th 2018.

Determining GST Applicability

• Factors: Revenue/area sharing, type of property (commercial/residential), affordability.
• Use FAQ format for clarity.

FAQ Analysis

1. Tax on Transfer of Development Rights (TDR):

   • Tax applies on TDR; landlord does not pay directly but developer pays via reverse charge.
   • Notifications: 28th June 2017, 29th March 2019.

2. Tax Rate on TDR for Residential Projects:

   • If booked before completion, exempt from developer liability.
   • Otherwise, 14-18% tax on unsold portions under reverse charge.
   • Affordable housing defined by carpet area and value.

3. Commercial vs. Residential Projects:

   • Residential projects must not exceed 15% commercial area to remain RREP.
   • Tax rates differ for affordable (1%) and non-affordable (5%) housing.

4. Tax on Unsold Residential Projects:

   • Developer pays tax on unsold portion.
   • Capped at 1% (affordable) or 5% (non-affordable).

5. Time of Supply:

   • Linked to completion certificate or occupancy.

6. Value of Supply:

   • Based on nearest independent sale value.

7. Tax on Completed Residential Sales:

   • Developers pay RCM tax on unsold development rights.

8. Residential vs. Commercial Taxation:

   • Residential: Limited ITC due to lower tax rates (1%/5%).
   • Commercial: Full ITC with 18% tax on TDR.

9. ITC on Commercial Property:

   • Full ITC available; tax on unsold portion to be reversed.

10. Contractor Taxation:

    • Works contracts typically taxed at 12% for affordable housing.
    • Adjusted to 18% if project affordability criteria not met.

Conclusion

• JDA taxation requires careful consideration of agreement type and property nature.
• Notifications and compliance with GST frameworks are critical.
• Suggestions and further questions can be addressed for clarity.