GST on Joint Development Agreement (JDA)

Introduction

• Discussion on GST related to Joint Development Agreement (JDA) due to COVID-19.
• Effectivity from April 1, 2019.

Types of Development Agreements

• Parties involved: Landlord and Developer.
• Two types of JDA:
  • Revenue Sharing: Sale proceeds shared with landlord.
  • Area Sharing: Flats divided between landlord and builder.
  • Mixed Mode: Combination of revenue and area sharing.
• Development properties can be:
  • Pure residential
  • Pure commercial
  • Mixed (partly commercial and residential)

GST Classification

• Residential properties classified as:
  • Affordable housing
  • Non-affordable housing
• Commercial area should not exceed 15% of total project area for RREP (Real Residential Real Estate Project).

GST Applicability

Section 7 of CGST Act

• Defines the scope of supply
• Excludes sale of land from scope
• Transfer of development rights (TDR) from landlord to developer is taxable.

Key Factors for Taxability

1. Revenue sharing or area sharing.
2. Type of property: Commercial or Residential.
3. Residential property type: Affordable or Non-affordable.

FAQs on Tax Liability

TDR Tax Liability

• Landlord: No direct tax liability; developer pays tax on TDR under reverse charge mechanism.
• Rate on TDR for Residential Projects:
  • Exempt if all units booked before completion.
  • If unsold, attracts 14%-18% GST.
  • Tax limited to 1% for affordable and 5% for non-affordable.

Definition & Tax Rates

• Affordable Residential Apartments:
  • Carpet area: ≤60 sqm in metros, ≤90 sqm in non-metros.
  • Price: ≤45 lakh INR.
• Residential Apartment Definition: As per RERA approval.
• Commercial Units in RREP:
  • Should not exceed 15% of carpet area.

Tax Calculation Examples

• Example of Unsold Stock:
  • TDR value of unsold stock taxed at 18% RCM, but confirmed to 1% or 5% of project value.

Time of Supply

• Linked to completion certificate or occupancy.
• For unsold properties, tax is calculated based on nearest independent buyer’s booking.

Developer's Sale Tax

• Before Completion:
  • 1% for affordable, 5% for non-affordable.
• On Constructed Area:
  • 1% or 5% tax depending on property type.

Commercial Projects

• TDR on Commercial Projects:
  • 18% tax under RCM.
  • Tax timing: Upon development rights agreement.

ITC and Restrictions

• Residential: No ITC for tax paid at 1% or 5%.
• Commercial: ITC available; must meet 80% registered purchase criterion.

Works Contract

• Contractor tax rate: 12% or 18% depending on affordable project fulfillment.

Conclusion

• Reverse charge mechanism is significant in JDAs.
• Separate considerations for residential and commercial properties.
• Suggestions and feedback are encouraged for further study.