A lot of people are not aware of a JDA and the GST associated with it. This article explains the concept of JDA and all the details associated with JDA.
GST on Joint Development Agreement: JDA, which is short for Joint Development Agreement is a prearrangement between the developer/builder and a land owner, where a land owner is required to contribute their land, and the builder or the developer has the responsibility of procuring approvals, constructing, launching and also advertising the project with the financial resources that come in.
JDA is applicable to GST and if you need help with GST online registration with respect to JDA, then reach out to Vakilsearch right away to enjoy hassle-free processing. Vakilsearch is the best online professional services platform for corporate bodies, lawyers, and professionals in India.
The following are the two common types of JDA:
- Revenue Sharing JDA
- Area Sharing JDA
The main feature of a JDA is that a land owner provides the land to the developer, who has the responsibility to get all the approvals, launching and advertising the projects with the financial resources at his disposal. Thus, we can say that JDAs are pretty common within the real estate sector in our country. Read on to understand more about the applicability of GST in the Joint Development Agreement.
What are the Advantages of a JDA or Joint Development Agreement
The following are the key advantages of a JDA:
- The beginning investment of the site/land is not needed by the developer
- Stamp duty can also be avoided at least partly
- Quick mode of property development, while the working capital obligation is pretty restricted towards construction and approval
- A secured loan can be attained by guaranteeing the piece of land, which is obtained under JDA
- The landlord/investor will be benefitted from thoughtful consideration.
More Details on the Joint Development Agreement
The parties and transactions which are involved in a JDA are as follows:
- Landowner – Developer: The landowner gives all the property development rights to the developer. This is done by the land owner signing a Joint Development Agreement. The developer, in turn, offers a continuous supply of construction services to the land owner over a specific period of time
- Developer – End Customer: The developer gets into construction/purchase agreements with homebuyers to offer construction services. GST is applicable on the property transaction, wherein the developer offers construction services to a homebuyer.
It is essential that one understands the applicability of GST on a transaction between the landowner – developer while getting into a JDA. All the aspects relating to GST applicability on a property transaction that involves an under-construction property are covered in this blog.
Discover how to calculate GST percentage easily with our GST calculation formula. Use our online GST calculator now!
How is JDA Charged under the Income Tax Law?
The developer who earns an income by selling their developed property is considered as their business income. Thus, the business income is chargeable according to the applicable provisions. However, any amount received by the landowner is considered a capital gain. The Joint Development Agreement model is pretty often challenged by the evaluating officers due to a lack of clarity related to taxation. Do reach out to Vakilsearch for any help regarding legal matters.
Taxability of GST on Joint Development Agreement
Under a Joint Development Agreement, the land owner hands over the development rights and enables activities on their land, and the builder or developer, in turn, makes a building on the piece of land. The land owner can either keep their share or sell the property to others. Thus, this type of arrangement can be broadened as
- Handing over the development rights to the builder from the landowner
- The service must be offered to the builder as a transfer of constructed flats or area
- Selling the flats or areas under construction by the builder to their customers
- The buyer selling under-construction flats or areas from its shares.
Applicability of GST on Joint Development Agreement
To simplify and explain the doubts that anyone may have once the GST is implemented and applicable, with respect to the Joint Development Agreement, the Government has issued a notification on the said matter. The following summarizes the details of the GST with respect to Joint Development Agreement:
Once a developer gets into a development agreement with a Landowner, the GST becomes payable by the landowner once the developer handovers the rights or possession in the complex, building, or civil structure (that has been constructed) to the landowner by getting into an allotment letter or a conveyance deed.
Thus, when the land owner obtains a constructed building from the developer for which they have provided land in exchange, the land owner becomes responsible for paying the GST. The GST rate that is applicable on such a transaction is 18%.
Transfer of Developmental Rights
Once the GST is implemented, the taxes are applicable during the handover of developmental rights. Thus, any handover of developmental rights that come under the immovable property is applicable as the supply of service. Also, any transfer of a constructed area in the house or flat is also applicable to GST. Vakilsearch can help you with any legal matters regarding the transfer of developmental rights.
GST Rate and Exemption for Transfer of Developmental Rights
The GST Council has applied an 18% GST rate with respect to the handover of developmental rights. However, according to Notification No. 4/2019 Central Tax on 29th March 2019, the GST Council has notified that an exemption will be applicable for registration of construction if initiated after the 1st of April 2019. Reach out to Vakilsearch for online GST registration of your Joint Development Agreement.
Valuation Mechanism
- For residential apartments that are affordable, the value will not surpass 1%
- For commercial residential apartments, the value will not surpass 5%.
Reverse Charge Mechanism
According to notification No. 6/2019 Central Tax on 29th March 2019, if a supplier offers the service by transferring the development rights for commercial or residential properties, the taxes will be applicable for the services that are provided. The supplier must pay the tax amount according to Section 9(3) of the CGST Act.
Scope of Taxation of JDA Under GST
A Joint Development Agreement (JDA) involves a complex interplay between a landowner and a developer. Understanding the GST implications is crucial.
There are three main transactions in a JDA:
Landowner Transferring Development Rights:
- Before March 2019: The landowner paid 18% GST on the property’s value when transferring rights.
- After March 2019: The developer pays a lower GST rate (1% or 5%) under the reverse charge mechanism based on the project type (affordable or non-affordable). The tax is calculated on unsold units at project completion.
Developer Transferring Construction Services:
- Before March 2019: The developer paid 12% GST on the construction value.
- After March 2019: The developer pays a lower GST rate (1.5% or 7.5%) based on the project type, calculated on the value charged to regular buyers.
Sale of developed property:
This is a standard real estate sale and attracts the regular GST rates for property sales.
Key points to remember:
- GST rates and responsibilities changed after March 2019.
- The value on which GST is calculated differs based on the transaction type and timing.
- Affordable housing projects generally have lower GST rates.
- Detailed record-keeping is essential for accurate GST calculation and compliance.
Conclusion
A Joint Development Agreement has a lot of advantages, however, one must understand all the aspects related to the JDA and the GST that applies to JDA. Vakilsearch is your one-stop shop for any help you may require concerning the applicability of the GST on JDA. With Vakilsearch you have the option for online GST registration. Our legal representatives are available to explain the whole GST registration process.
FAQs
What is the point of taxation for GST in a Joint Development Agreement?
The primary purpose of GST in a JDA is to tax the value addition at each stage of the development process. This includes the transfer of development rights by the landowner and the construction services provided by the developer. The collected GST is used to fund public services and infrastructure development.
Are there any GST exemptions for landowners in a JDA?
While there were previously exemptions for landowners, the current GST regime has largely removed these. However, specific situations might qualify for exemptions, such as affordable housing projects or certain government-sponsored schemes. It's essential to consult with a tax professional for accurate guidance.
What are the implications of the Reverse Charge Mechanism (RCM) on JDA?
Under RCM, the developer, rather than the landowner, is responsible for paying GST on the transfer of development rights. This shifts the tax burden from the landowner to the developer. It also requires developers to maintain detailed records of their inputs and outputs for accurate GST calculation.
Is input tax credit (ITC) available for developers in a JDA?
Yes, developers can claim input tax credit (ITC) on GST paid on inputs and services used in the construction process. This includes GST paid on materials, labor, machinery, and other expenses related to the project. However, ITC rules and restrictions apply, so it's crucial to understand the eligibility criteria.
