GST on Development Rights: Same War, Different Weapon

The implementation of Goods and Services Tax (GST) in India was a landmark event in the country's financial history. While it was a much-needed reform to streamline multiple taxes and improve the ease of doing business, there were several challenges that arose during its implementation. One such challenge was the applicability of GST on the transfer of development rights (TDR) and joint development agreements (JDA).

Before we dive into the specifics of GST on development rights, it is important to understand what TDR and JDA entail. TDR refers to the right to develop a piece of land that has been transferred from one person to another, without actually transferring the ownership of the land. JDA, on the other hand, is an agreement between the landowner and the developer, where the landowner contributes his land and the developer contributes his expertise to develop the land. In return, the developer is entitled to a share of the developed property.

Now, let us look at how GST applies to TDR and JDA. The GST Council has issued a clarification that TDR and JDA will be treated as a supply of service, attracting GST at the rate of 18%. This means that in case of TDR, the transferor will have to pay GST on the value of the TDR, while the transferee will be eligible to claim input tax credit (ITC). In case of JDA, the developer will have to pay GST on the value of his share of the developed property, while the landowner will be eligible to claim ITC.

However, there have been several concerns raised by the real estate industry regarding the applicability of GST on TDR and JDA. One of the main concerns is the double taxation that arises in case of JDA. As per the current provisions, both the developer and the landowner are required to pay GST on their respective shares of the developed property. This means that there is a possibility of double taxation on the same transaction, which could lead to an increase in the cost of the project.

Another concern is regarding the valuation of TDR and JDA for the purpose of determining the GST liability. In case of TDR, there is no clear mechanism for determining the value of the TDR, which could lead to disputes between the parties involved. Similarly, in case of JDA, there are concerns regarding the valuation of the land contributed by the landowner, which could result in disputes between the landowner and the developer.

Despite these concerns, it is important to note that the GST Council has taken several steps to address these issues. For instance, it has clarified that the value of the TDR will be determined based on the stamp duty value of the land as on the date of transfer. It has also clarified that in case of JDA, the value of the land contributed by the landowner will be determined based on the stamp duty value of the land as on the date of the agreement.

In conclusion, the applicability of GST on TDR and JDA has been a subject of much debate and discussion in the real estate industry. While there have been concerns regarding the double taxation and valuation issues, the GST Council has taken steps to address these concerns. It is important for all stakeholders to understand the implications of GST on TDR and JDA and comply with the relevant provisions to avoid any disputes or penalties.