JDA Under GST

1. Joint Development Agreement

1A. Taxability On Transfer of Development Rights

Development rights are Immovable Property

Law relating to immovable property

• Finance Act, as well as the GST Act, does not provide for the definition of immovable property.
• Transfer of Property Act covers the law w.r.t immovable property but misses out on definition.
• So General Clauses Act is taken into consideration which defines the immovable property u/s. 3(26) as:

Immovable property shall include land, benefits arising out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth”

• Development Rights are benefits that arise from the land and therefore to be considered as immovable property.
• In various judicial pronouncements, it has been held that Developments Rights are immovable property.

Supporting Case Laws

In the case of Chheda Housing Development Corporation, 2007 (3) MhLJ 402. The Hon’ble Bombay High Court has observed that the benefit arising from land is an immovable property and FSI/TDR being benefit arising out of land must be held to be immovable property. Relevant Para of the Judgment is extracted below:

15…… From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief

The Hon’ble Bombay High Court in the matter of Sadoday Builders Pvt. Ltd. (2011)6 Bom CR 42 has relied on the Judgement given in Chheda Housing Development Corporation and held that transfer of development rights are benefits arising out of the land and therefore must be considered as immovable property.

Levy of GST on Transfer of Development Rights

• Scope of Supply defined under Section 7 of the CGST Act provides for those activities which shall neither be treated as a supply of goods nor as a supply of services covered under Schedule-III which includes the sale of land vide Para.5.
• But the definition of Service under GST is very wide and it only excludes goods as well as the prescribed exclusion given in the definition itself
• Therefore, GST only excludes the transaction of sale of land, not immovable property, hence GST is applicable to transfer of development rights.

Taxability on the transfer of Development Rights

Tax Rate – 18%

– While granting the exemption, the Government has classified under SAC 9972. Prima facie it does not fall under SAC 9972, but the same rate of tax @ 18% under residual entry under SAC 9997

Exemption

-Transfer W.e.f. 01.04.2019 exempt for Construction of Residential Apartments

• An exemption shall be withdrawn to the extent unsold inventory on the issuance of CC or First Occupation
• Development Rights Transferred prior to 01.04.2019 – No Exemption

-No exemption for transfer pre 1.4.2019: contrary to the policy

-No Exemption for Commercial Units in both REP and RREP

-No Exemption for Residential Plots

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