GST ON JOINT DEVELOPMENT AGREEMENTS AND CONTRUCTION SERVICES

by CMA KAMESWARA RAO M

INTRODUCTION:

Goods and Services Tax (GST) has impacted many sectors in the economy including the real estate section. One of the important aspect of real estate transactions is Joint Development Agreements (JDA) where Land owners and developers join hands for construction of Projects. The taxation of JDAs under GST is always combined with interpretations and disputes, as it involves supply of Land, construction services and revenue sharing arrangement.

In this Article, we will explore the taxability of JDAs, construction services, under GST covering time of supply, valuation and compliance requirements.

JOINT DEVELOPMENT AGREEMENTS:

A Joint Development Agreement (JDA) is an agreement between land owner and the developing agency where the land owner provides land and developing agency supply construction service. The developing agency and land owner share revenue or share the constructed area.

TYPES OF JOINT DEVELOPMENT AGREEMENTS:

1. Revenue Sharing Model: The Land owner and construction agency will share the revenue generated on selling the units constructed,  in a mutually agreed ratio.
2. Area Sharing Model: The Land owner receives a specified % or number of units constructed instead of monitory compensation

Under GST Regime, JDA attract GST as there is supply of construction service is involved. The taxability, valuation and time of supply depend on the structure of the agreements entered.

1. TAXABILITY OF JDAs UNDER GST:

Under Goods and Service Act, 2017, schedule II, construction service in exchange for development rights granted is taxable.

GST applies to both land owner’s share as well as developer’s share of units constructed.

2. TIME OF SUPPLY UNDER JDA:

-> FOR THE DEVELOPER:

1. Supply of construction service to land owner is taxable at the time of transfer of possession to land owner or signing of JDA.
2. GST liability arises when first occupancy certificate is received.

-> For Land Owner:

1. The Land owner is liable to pay GST if they sell the allotted units before issue of Occupancy Certificate.

3. VALUATION OF SUPPLY UNDER JDA:

• The value of construction services provided by the developer is determined based on the open market value of similar services.
• If open market value is unavailable, GST is levied based on the nearest comparable construction cost.

For example:
If the developer constructs 20 apartments, keeping 12 and giving 8 to the landowner, GST applies to the cost of constructing the landowner’s 8 apartments.

3. RATE OF GST ON JDA TRANSACTIONS

• For affordable housing projects, the GST rate is 1% without input tax credit (ITC)
• For other residential projects, the GST rate is 5% without ITC.

If the agreement involves commercial units, GST is charged at 12% with ITC

GST ON CONSTRUCTION SERVICES:

1. Definition of Construction Services under GST
   • As per Section 2(119) of CGST Act, construction services include the supply of goods and services for the construction of buildings, apartments, or complexes
   • GST is applicable when the property is sold before obtaining the Occupancy Certificate (OC).
2. Applicability of GST on Construction Services:
   • GST is applicable when the construction service is provided for a consideration (money or barter).
   • If a builder sells a unit before receiving the Completion Certificate (CC) or Occupancy Certificate (OC), GST is applicable.
   • If the sale occurs after the issuance of CC/OC, it is treated as a sale of land, which is not taxable under GST.
3. GST Rate on Construction Services:
   • 1% GST: Affordable housing projects under PMAY (Pradhan Mantri Awas Yojana).
   • 5% GST: Residential projects (other than affordable housing).
   • 12% GST: Commercial constructions (with ITC).
4. Time of supply of Construction Service:
   • GST Liability arises at the time of issue of invoice or receipt of payment whichever is earlier

INPUT TAX CREDIT ON CONSTRUCTION SERVICES:

• Developers can avail ITC on inputs used in construction (cement, steel, etc.)
• ITC is not allowed for developers opting for 5% GST rate on residential construction.
• For commercial projects (12% GST rate), ITC is available on inputs and services

EXEMPTIONS AND NON TAXABLE TRANSACTIONS:

• Completed property sales: If the property is sold after receiving the Occupancy Certificate (OC), no GST applies.
• Land transactions: The sale of land is outside the scope of GST.

RECENT AMENDMENTS AND JURISPRUDENCE ON GST AND JDAs

• Ruling by AAR (Authority for Advance Rulings): Landowners are liable to pay GST when they sell units before obtaining the OC.
• CBIC Clarifications: Developers must pay GST on the landowner’s share of units if the agreement is signed before completion.

COMPLIANCE REQUIREMENT UNDER GST FOR JDA AND CONSTRUCTION:

• GST Registration is required for both developer and landowner (if units are sold) and turnover exceeds Rs.20 lakhs.
• Tax Invoice shall be issued by Developing Agency to land owners for construction service
• GST Returns (GSTR 1 and GSTR3B) shall be filed by both Land owners and developing agency.
• If units are sold after obtaining Occupancy Certificate, then ITC availed on those units shall be reversed.

CONCLUSION:

GST on Joint Development Agreements (JDAs) and construction services is a complex but crucial aspect of real estate taxation. Both developers and landowners must understand their tax liabilities and compliance requirements.

• Developers providing construction services are liable for GST on landowner’s share.
• Landowners must pay GST when selling units before obtaining OC.
• ITC benefits are available only for commercial projects (not for residential under 5% GST).
• Proper documentation and timely GST filing are essential to avoid disputes.

With changing tax laws and frequent clarifications by the GST Council, real estate businesses must stay updated on compliance requirements to ensure smooth operations and avoid tax disputes.

This article is a part of Article Writing Competition 2025.