Sale of Commercial Apartments: A Detailed Guide on Legal and GST Implications
This article will break down the Joint Development Agreement (JDA) between a landowner and a promoter, specifically focusing on the Goods and Services tax (GST) implications in both Area Sharing and Revenue Sharing agreements.
What is a JDA?
A JDA is a contract between a landowner and a promoter where the landowner provides land for development, and the promoter develops the land at their own cost, sharing the project’s benefits with the landowner upon completion.
Types of JDAs:
- Area Sharing: The landowner receives a pre-determined share of the developed area (apartments, shops, etc.) as their compensation.
- Revenue Sharing: The landowner receives a pre-determined share of the revenue generated from the sale of the developed property.
Tax Implications:
Under both Area and Revenue Sharing:
- Promoter’s Liability:
-
- Reverse Charge Mechanism (RCM): In case of commercial units the promoter is liable to pay Goods and Services Tax (GST) on the transfer of development rights (TDR) from the landowner under RCM, irrespective of booking dates. The current GST rate on TDR is 18%.
- Valuation of TDR:
- Area Sharing: TDR value is equal to the value of similar commercial apartments charged by the promoter from independent buyers at the time of TDR transfer.
- Revenue Sharing: Value of TDR is the total anticipated revenue share of the landowner from the final sale of commercial apartments.
-
- Landowner’s Liability:
- Construction Services: The landowner is liable to pay GST on the construction services received from the promoter.
- Landowner’s Liability:
-
- Valuation of Construction Services:
-
- Area Sharing: The value is the total amount charged for similar commercial apartments in the project from independent buyers, less the value of transferred land.
- Revenue Sharing: Currently, the law doesn’t specify the value, but it could potentially be based on the actual cost.
Tax Illustrations:
Area Sharing Agreement:
- Total commercial units: 20
- Un-booked commercial units before completion certificate (CC): 5
- Unit price: INR 20 lakhs
- Landowner’s share: 5 units
GST on TDR: (5 units * INR 20 lakhs/unit) * 18% = INR 18 lakhs
Revenue Sharing Agreement:
- Landowner’s revenue share: INR 1 crore
- Total commercial units: 100
- Unsold commercial units till CC: 10
GST on TDR to be paid under RCM: INR 1 crore * 18% = INR 18 lakhs
Conclusion:
Understanding the tax implications of both Area and Revenue Sharing agreements under a JDA is crucial for both landowners and promoters. This detailed breakdown provides essential information to navigate the complexities of this type of agreement and ensure GST compliance.
DISCLAIMER:
The information contained herein is in summary form and is prepared based on the provisions of GST and allied laws and related Rules, Circulars, Notifications therein. For details, please refer the relevant provisions. While the information is believed to be accurate to the best of our knowledge, we do not make any representations or warranties, express or implied, as to the accuracy or completeness of this information. Reader should conduct and rely upon their own examination and analysis and are advised to seek their own professional advice. We accept no responsibility for any errors it may contain, whether caused by negligence or otherwise or for any loss, howsoever caused or sustained, by the person who relies upon it.
To download the pdf file of the above post, please click on the download button below.
About Us
DPNC Global LLP is a full service consulting firm providing multi-disciplinary services to clients ranging from MNCs, Indian Corporates from across industries to Family Offices and UHNIs, both in and outside India.
Our GST & Indirect Tax Services team focuses on resolving practical issues faced by taxpayers and businesses while ensuring due compliance with complex legislation. Our services extend from timely and systematic support for GST compliances to advisory on a wide range of contemporary indirect tax issues and GST litigation support.
Our team of GST Consultants possesses in depth experience across diverse sectors and offer tailored solutions for tax optimization while ensuring due compliance with this complex and dynamic legal transaction regime law. To know more about our services, visit https://dpncglobal.com/gst-indirect-tax/