A Joint Development Agreement (JDA) is a prearrangement between a landowner and a developer or builder.
In this agreement, the landowner contributes their land, while the developer takes on the responsibilities of obtaining approvals, constructing, launching, and advertising the project with the financial resources at their disposal.
JDA is subject to GST and complying with it is mandatory to avoid punishments and penalties.
Let’s learn all about the GST on Joint Development Agreement.
GST on Transfer of Developmental Rights
When the Goods and Services Tax (GST) is implemented, taxes will be applicable during the transfer of developmental rights.
This means that any transfer of developmental rights that is associated with immovable property will be considered a supply of service and will be subject to GST.
Additionally, any transfer of a constructed area in a house or flat will also be subject to GST. Thus, the GST also becomes applicable when you do sign joint development agreements.
GST Applicability in Joint Development Agreements (JDAs)
Applicability GST in JDAs is as per the following circumstances:
- Under a revenue sharing JDA, the developer provides construction services to the landowner. This is considered as a supply of services under GST. The developer is required to charge GST on the value of services provided, and the landowner can claim the GST paid as input tax credit (ITC) if they are registered under GST.
- Under an area sharing JDA, the developer provides construction and development services to the landowner. This is also considered as a supply of services under GST. The developer is required to charge GST on the value of services provided, and the landowner can claim the GST paid as ITC if they have GST Registration.
GST Rates on Joint Development Agreement
|Category||GST Rate||SAC Code|
|GST on the transfer of development rights (taxability in the hands of the developer)||18%||9972|
|GST on the construction service of apartments that the developer gave to the landowner for the transfer of development rights||Affordable residential apartment: 1%
Commercial apartments: 12%
|GST on development rights attributable to unsold apartments (residential)||18%||9972|
|GST on the transfer of development rights from the landowner to developer||Nil||9954|
Other Circumstances of GST Applicability on Joint Development Agreement
GST is also applicable in following circumstances:
- Transferring development rights to the builder by the landowner.
- Providing the service to the builder in the form of the transfer of completed flats or constructed areas.
- The builder sells under-construction flats or areas to their customers.
- The purchaser selling under-construction flats or areas from their allocated shares.
How can one determine the capital gains tax on a joint development agreement?
The capital gains from a Joint Development Agreement (JDA) are subject to taxation in the year in which the landowner transfers the property to the developer for development. These gains are treated as taxable income for the preceding year, which is the year in which the completion certificate for the entire property or a portion of it is issued.
Furthermore, if the developer transfers the project on or before the certificate issuance date, the capital gains are also attributed to the income of the previous year. In accordance with Section 194-IC, if the developer makes payments to the landowner, apart from the project’s share, they can withhold a TDS of 10%.
In Conclusion, A Joint Development Agreement (JDA) offers several advantages, but it is crucial to understand all of its legal and tax implications, including the applicable GST. e-StartupIndia is a one-stop shop for any help you may need with regard to the applicability of GST on JDA. With e-StartupIndia, you have the option for online GST registration. Their legal representatives are available to explain the entire GST registration process.
Moreover, If you want any other guidance relating to GST on Joint Development Agreement, please feel free to talk to our business advisors at 8881-069-069.
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