#TaxmannPPT | GST Implications on Joint Development Agreements for Builders & Developers

GST implications for JDA for Builders & Developers Subject

:

Taxmann Webinar on GST Implications on Joint Development Agreements for Builders & Developers

Day & Date

:

Wednesday, 18th October 2023

Presented by

:

CA Parag Mehta & CA Ankit Joshi

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

1

Snapshot - Real Estate Sector in GST Regime Period

Tax rates

01.07.2017 to

GST on Sale of under-construction affordable units- 8% with ITC of inputs , input services and

31.03.2019

capital goods GST on Sale of under-construction units (residential & commercial) – 12% with ITC of inputs , input services and capital goods

01.04.2019

GST on Sale of under-construction affordable units- 1% without ITC

onwards

GST on Sale of under-construction residential units - 5% without ITC GST on Sale of under-construction commercial units in RREP project: 5% without ITC GST on Sale of under-construction commercial units in REP project or in an exclusive commercial project: 12% with ITC

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST on or after 01.04.2019 [Post Amendments vide Notification 03 to 09 – Central Tax (Rate) dated 29.03.2019]

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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One Time Option for Ongoing Projects  Builders to have one-time option for ONGOING PROJECTS:

• To pay tax at existing effective rates i.e. 8% (affordable houses) or 12% (others) with Input tax credit (‘ITC’); or • To pay tax at new rate i.e. 1% (affordable houses) or 5% (others) without ITC

 Option to be exercised by filing notified form on or before 10th May, 2019 (which was further extended to 20th May, 2019)  In case of failure to exercise option, new taxation scheme will apply

 Above option is not available for projects: •

other than ongoing project

•

New Projects commencing on or after 1st April, 2019

 Ongoing project is a project satisfying stipulated conditions in notification 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Tax Implications on or after 01.04.2019 – Ongoing Projects Opting for Old Scheme Particulars

Effective Tax Rate

Sale of under-construction residential affordable house

8% (with ITC)

Sale of under-construction residential units (other than affordable)

12% (with ITC)

Sale of under-construction commercial units

12% (with ITC)

Sale of Completed Flats/ units Post OC

Nil

 Accumulated ITC as on 31st March, 2019 remains intact  Credit of tax paid for inputs, input services and capital goods procured on or after 1st April,2019 can be availed  Output tax liability can be discharged from ITC balance  No stipulation as to procurement of 80% of input and input services from registered vendors

 No stipulation for payment under RCM on procurement from unregistered vendors  ITC proportionate to unsold units needs to be reversed U/R 42 on completion of the project 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Tax Implications on or after 01.04.2019 – Ongoing Projects (Not Opting for Old Scheme) and New Projects Particulars

Effective Tax Rate

Mode of payment

1% (without ITC)

Cash

Sale of under-construction residential units (other than affordable)

5% (without ITC)

Cash

Sale of under-construction commercial units (in RREP i.e. upto 15% of total carpet area)

5% (without ITC)

Cash

Sale of under-construction residential affordable house (Including houses under Specified Schemes)

Sale of under-construction commercial units (in REP)

12% (proportionate ITC)

Sale of under-construction commercial units (in exclusive commercial complex) Sale of completed flats / Units Post OC

Cash / Credit

12% (with ITC)

Cash / Credit

Nil

NA

 Builder is not entitled to ITC in respect of services taxed at concessional rate  Mandatory procurement to the extent of 80% from Registered Person and tax payable under RCM on shortfall 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Snapshot – Amended Scheme of Taxation Projects Ongoing projects (Option not exercised) or New Projects - Subject to specified conditions

Ongoing projects (Option exercised for old scheme)

Residential Projects: - Affordable 8% - Non-Affordable 12% (With ITC)

Commercial Projects: 12% With ITC

Residential Projects: - Affordable 1% - Non-Affordable 5% (No ITC)

Commercial Projects: 12% With ITC

Mixed Projects(RREP): - Res. Affordable 8% - Res.Non-Affordable12% - Commercial 12% (With ITC)

Mixed Projects(REP): - Res. Affordable 8% - Res.Non-Affordable12% - Commercial 12% (With ITC)

Mixed Projects(RREP): - Res. Affordable 1% - Res. Non-Affordable 5% - Commercial 5% (NO ITC)

Mixed Projects(REP): - Res. Affordable 1% - Res. Non-Affordable 5% - Commercial 12% (Proportionate ITC)

 Sale of completed flats/ commercial units (Post OC) – Not liable to GST 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Affordable Residential Apartment

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Affordable Residential Apartment Particulars

Conditions

Metropolitan Cities*

House having carpet area upto 60 sq. mt. (approx. 644 sq. ft. – RERA Carpet) ; and having Gross amount upto Rs. 45 Lacs

Non-metropolitan

House having carpet area upto 90 sq. mt. (approx. 968 sq. ft. – RERA Carpet) ; and

cities/towns

having Gross amount upto Rs. 45 Lacs

An

apartment

ongoing project

in

an Covered under specified schemes [Under Notification No. 11/2017-CT(R)] for which the promoter has not exercised option to pay tax under old scheme

*Metropolitan cities include following: Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata, Mumbai (whole of Mumbai Metropolitan region (MMR) i.e. consists of 8 Municipal corporation and 9 Municipal councils around Mumbai) 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Value of Affordable Residential Apartment  Determination of threshold value (i.e. Gross amount) of Rs. 45 lakhs: •

Consideration charged for services

•

Amount charged for the transfer of land or undivided share of land, including by way of lease or sublease

•

Following to be included for calculating threshold: Development charges

Parking charges

Preferential Location Common Facility Charges charges

Similar Charges

 Whether following should be included for calculating threshold of Rs. 45 lakhs?

Infrastructure Charges

Extra amenities

Club House Charges

Furniture

Society formation charges

Share capital contribution

Advance maintenance

Legal charges

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Conditions for concessional rate of tax under new scheme of taxation

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Non – Availment of ITC  Builder not entitled to ITC related to supply used in construction services taxed at 1% or 5%  Builder not entitled to utilize ITC for discharging tax liability

 ITC not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B  Builder to reverse the ITC availed from 01.07.2017 (or from inception of project if started after 01.07.2017) till 31.03.2019 which is attributable to installments due on or after 1st April, 2019 (to be taxed at concessional

rate) As per formula given in Notification No. 03/2019- CT (R), transitional credit needs to be taken into account for above referred reversal  Reversal to be worked out project wise as per formula provided in NN 3/2019 – CT (R) dated 29.03.2019`

- How to allocate Transitional credit between the projects?  Reversal to be done before due date for filing of return for September, 2019 (i.e. 20th October, 2019)  Reversal can be done by utilizing ITC balance lying in the electronic credit ledger and/or by making cash

payment 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Procurement from Registered Persons  Eighty percent (80%) of value of input and input services used for supplying construction services [taxed at concessional rate] to be procured from registered persons  For calculating shortfall, following procurement should be excluded:

Development rights Motor spirit

High speed diesel

Electricity

Natural gas

FSI

Long term lease of land (against upfront payment in the form of premium, salami, development charges etc.)

 GST to be paid under RCM at 18% on inputs (other than cement) and input services in case of shortfall of purchases of 80% from registered person (irrespective of applicable tax rates)  GST to be paid under RCM on following procurements from unregistered person (irrespective of stipulated shortfall): •

Capital goods at applicable rate [Notification No. 7/2019 – CT (R)]

•

28% on Cement 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Procurement from Registered Persons  Builder shall maintain project wise account of inward supplies from registered and unregistered supplier and

calculate tax payments on the shortfall at the end of the financial year (or up to date of completion of project)  Builder shall submit the above details in the prescribed form electronically on the common portal by end of the quarter (30th June) following the financial year (Form – not yet notified)  Tax liability on the shortfall of inward supplies from unregistered person (except cement and capital goods) to be added to output tax liability in the month of June following the end of the financial year.

 Monthly payment of tax under RCM on procurement of following from unregistered persons: •

Cement at 28%;

•

Capital goods at applicable rates

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Taxability of Development Rights, FSI, TDR and Lease premium

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Taxability of DR/TDR/FSI/Lease premium 01.07.2017 to 31.03.2019  Taxability:

Department View – Such rights are not land per se and hence liable to GST at 18% Legal View – Rights in land is land per se and hence not liable to GST. Person liable to pay tax – Landowner, Supplier, Lessor under Forward charge

 Time of Supply - Point of time when Development Rights / TDR/ Lease Rights are transferred irrevocably  Value of Supply: •

If in cash- Transaction value [Section 15(1) of CGST Act] in case of non-related party

•

If in Kind- Market value of such rights i.e. reckoner value or stamp duty valuation [ Rule 27(a) of CGST Rules]

 Tax Rate - 18% under HSN code 999799 (Other services nowhere else classified)  Service recipient (Builder or Developer) was entitled to ITC thereof

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Transfer of DR/TDR/FSI/Lease on or after 01.04.2019 for Construction of Residential apartments Taxability

•

Transfer of DR / TDR / FSI / Lease used for sale of under construction

[Notification No. 04/2019 – CT (R)]

residential units is exempt

- presuming it is a supply (not falling •

Taxable to the extent of unsold residential flats on the date of

under Sch. III of CGST Act) and hence

issuance of completion certificate or first occupation, whichever is

leviable to tax

earlier

Due date for Payment of Tax

Not later than tax period in which Completion certificate is issued or First

- In area sharing, revenue sharing or

occupation in the project whichever is earlier

outright purchase of DR/TDR/FSI/Lease

[Notification No. 6/2019 – CT (R) amended by Notification No. 03/2021 – CT (R) dated 02.06.2021]

Person liable to pay Tax

Promoter – Developer (to be paid under RCM)

Credit of tax paid under RCM by

New Scheme – ITC not eligible;

Developer on or after 01.04.2019

Old Scheme – ITC eligible

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Transfer of DR/TDR/FSI/Lease on or after 01.04.2019 for Construction of Residential apartments Tax on transfer of DR/ TDR/

Lower of: [Notification No. 04/2019 – CT (R)]

FSI/Lease pertaining to unsold

•

flats on completion of project

18% on Value of DR/TDR/FSI* in proportion to carpet area of such unsold

flats to total carpet area of residential flats; or •

1% / 5% of Value of such unsold flats**

* Valuation of DR/TDR/FSI/Lease  Outright purchase: value of monetary consideration paid for outright purchase  Revenue sharing: monetary consideration paid to the Landowner as revenue share;  Area sharing: value of similar apartments charged by promoter from independent buyers nearest to the date of transfer of DR/TDR/FSI; **Value of unsold flats is deemed as equal to value of similar apartments charged by the promoter nearest to the date of completion certificate or first occupation, whichever is earlier 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Transfer of DR/TDR/FSI/Lease on or after 01.04.2019 for Construction of Commercial apartments Taxability

Taxable

Due date for payment of Outright purchase: Date of transfer of DR/TDR/FSI/Lease Tax

Area Sharing:

Not later than the tax period in which: • Completion certificate is issued; or • First occupation of project.

Whichever is earlier Revenue Sharing (probable views):

Person liable to pay Tax 18th October, 2023

•

Date of execution of DA/JDA (Value may be unascertained on such date)

•

Actual date of payment of revenue share

•

Completion of project

Promoter – Developer (to be paid under RCM) CA Parag Mehta & CA Ankit Joshi

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Transfer of DR/TDR/FSI/Lease on or after 01.04.2019 for Construction of Commercial apartments Tax rate Valuation DR/TDR/FSI

18% on Value of DR/TDR/FSI/Lease of Outright purchase: value of monetary consideration paid for outright purchase Revenue sharing: monetary consideration paid to the Landowner as revenue share;

Area sharing: value of similar apartments charged by promoter from independent buyers nearest to the date of transfer of DR/TDR/FSI; Credit of tax paid under For exclusive commercial projects - ITC is eligible [subject to reversal on completion of project u/R RCM by Developer

42]

For REP – ITC attributable to Commercial portion can be claimed [subject to reversal on completion of project u/R 42] For RREP (with Commercial portion less than 15%) - ITC not eligible for developer opting New

scheme. However, same is eligible for developer opting Old scheme; 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Joint Development Arrangements (JDA) – Area Sharing

18th October, 2023

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Joint Development Agreement (Area Sharing)

Landowner / Landowner / Joint Joint Developer Developer

Development potentials to Developer (Partial or full) Developer Developer

Owner’s apartments

Customers

 What are the tax implications of above arrangement for residential or commercial complex?

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Transfer of Development Right / TDR/ FSI / Lease premium in JDA (Area sharing) [On or after 1st April 2019]  Landowner transfers development rights to Developer  Landowner receives consideration in form of constructed apartments (Owner’s Area)

 Time of supply arises on irrevocable transfer of development rights  Due date of payment – on completion of project [Notification No. 6/2019-CT(R) dated 29.03.2019]  Transfer of development rights/TDR/FSI/Lease rights on or after 01.04.2019 is exempt where it is used for

construction of residential apartments sold before issuance of completion certificate  Development rights, TDR, FSI, lease premium used for following is not exempt: •

Construction of commercial premises including those in RREP (to be paid by developer under RCM)

•

Construction of residential apartments to be sold after completion i.e. unsold apartments as on date of OC (payable by developer under RCM)

 Onus is not on landowner to discharge GST on transfer of DR/TDR/FSI/ Lease rights on or after

01.04.2019 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Transfer of Development Right in JDA (Area sharing) On or after 1st April 2019 GST payable by developer under RCM on development rights relatable to: Apartments Construction commercial apartments

Taxability of

Value of Development Rights shall be deemed to be value of similar commercial apartments charged by promoter from Independent buyer nearest to date of transfer of Development Rights or FSI. Tax rate will be 18% thereof - Clause iii of Notification No. 04/2019-CT(R) dated 29.03.2019

Residential • Tax payable will be lower of: apartments • 18% of DR / TDR/ FSI value (as worked out below) attributable to unsold apartments; or remained unsold on completion • 5% or 1% of value of unsold apartments • Value of Development Rights shall be deemed to be value of similar apartments charged by promoter from independent buyers nearest to the date of transfer of DR/TDR/FSI and monetary consideration paid, if any; • Value of unsold apartments shall be deemed to be value of similar apartments charged by promoter nearest to date of completion or first occupation; or 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST on Area Allotted to Landowner in JDA (Area sharing) [on or after 1st April 2019] Developer  Construction of owner’s apartments is a service by developer to landowner which is liable to GST [subject to final verdict of Honourable Supreme Court in case of Vasantha Green Projects where in Hyderabad CESTAT held that service tax is not payable by developer on owner’s area]  Developer shall pay tax on owner’s area at the time of completion certificate or first occupation, whichever is earlier

 Notification No. 3/2021-Central Tax (Rate) dated 02.06.2021 allows developer to prepone tax payment on landowners' area to enable landowner to claim ITC thereof  GST to be paid on the value of total amount charged for similar apartments in the project to independent buyers nearest to the date of transfer of development rights  Developer is liable to GST on sale of under-construction apartments / units at 5% or 1% or 12% subject to conditions mentioned in Notification 3/2019 – CT(R) 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST on Sale of Owner’s Apartment by Landowner in JDA (Area sharing) on or after 1st April 2019  Landowner is liable to GST on sale of under-construction apartments / units at 5% or 1% or 12%  Developer will charge GST @ 5% or 1% or 12% on apartments allotted to landowner  Developer can pay GST on earlier of date of completion of project or first occupation  Landowner is entitled to input tax credit of GST levied by developer on construction of owner’s flat subject to cap

of output tax payable on Residential or commercial apartments (in RREP) sold under construction  If developer pays tax on completion of the project, landowner will not be in a position to avail or utilise ITC Notification No. 3/2021-Central Tax (Rate) dated 02.06.2021 allows developer to prepone tax payment on

landowners area  GST in respect of apartments / units remaining unsold in the hands of landowner on the date of OC will become cost to landowner where developer has charged GST on area allotted to him

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST payable on Salable Area on or after 1st April 2019 Developer  GST payable on sale of under construction apartments/units at 1% or 5% or 12% as applicable  ITC not available for inputs and input services (including development rights) relatable to residential/ commercial units sold at concessional rate of 1% or 5%

 Proportionate ITC relatable to under construction commercial units (to be taxed at 12%) is allowable  ITC reversal on unsold commercial units to be done as per Rule 42 and 43: •

On area basis; and

•

For entire project period (excluding pre-GST credit and transitional credit)

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Joint Development Agreement (JDA) – Revenue Sharing

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Joint Development Agreement (Revenue Sharing) Development potentials to Developer Developer Revenue Share in agreed proportion

Landowner / Joint Developer

Customers

Sale of apartments  Revenue Share could be on:

•

Top Line (Sales proceeds/ Realization); or

•

Bottom Line (Project Profit); or

•

Any other basis

 What are the tax implications of above arrangement?

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST on Transfer of Development Rights in JDA (Revenue sharing) on or after 1st April 2019 Landowner  Landowner transfers development rights to Developer  Landowner receives consideration in form of revenue share  Transfer of development rights on or after 01.04.2019 is exempt where it is used for construction of: •

residential apartments to be sold before issuance of completion certificate; and

•

Such apartments are liable to GST

 Development rights, TDR, FSI used for following will still be liable to GST: •

Construction of commercial premises (to be paid by developer under RCM)

•

Construction of Residential Complex intended for sale after completion (to be paid by developer under RCM)

 Onus is not on landowner to discharge GST on transfer of DR/TDR/FSI/ Lease rights on or after 01.04.2019 whether it pertains to residential or commercial construction 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST on Apartments / Units Sold to Ultimate Customers in JDA (Revenue sharing) [On or after 1st April 2019] Developer  GST payable on sale of all under construction apartments/units at 5% or 1% or 12% as applicable  ITC not available for inputs and input services (including development rights) relatable to residential/ commercial units sold at concessional rate of 1% or 5%  Proportionate ITC relatable to under construction commercial units to be taxed at 12% is allowable

 ITC reversal on unsold commercial units to be done as per Rule 42 and 43: •

On area basis; and

•

For entire project period (excluding pre-GST period and transit credit)

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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GST Payable by Developer Under RCM on Development Rights in JDA (Revenue sharing) On or after 1st April 2019 Particulars

Taxability of GST at 18% will be payable under RCM on actual revenue share paid to landowner

Construction commercial apartments Residential remained

(How to determine this on the date of transfer of Development Rights?)

apartments • Tax payable will be lower of: unsold

completion

on

• 18% of DR / TDR/ FSI value attributable to unsold apartments; or • 5% or 1% of value of unsold apartments • Value of Development Rights shall be proportionate revenue share paid to landowner in respect of unsold apartments • Value of unsold apartments shall be deemed to be value of similar apartments

charged by promoter nearest to date of completion or first occupation; or 18th October, 2023

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Relevant Legal Precedents

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Relevant Legal Precedent  Honorable Hyderabad Tribunal in the case of Vasantha Green Projects v. Commissioner of Central Tax, GST [2018] 95 taxmann.com 317/[2019] 20 GSTL 568 (Hyd. - CESTAT)- “it can be observed that service tax is liable to be paid on gross amount charged i.e. to say consideration received from land owners in kind and consideration received from prospective customers i.e. total gross amount. In the case in hand, the amount attributable to the consideration received by appellant in the form of land rights from the land owner stands included in the value of villas sold to prospective customer which would mean that whatever consideration was received by the appellant in form of developmental right was considered in assessable value”

 Order in Appeal no. PVNS/309/APPEALS THANE/TH/2018-19/5808 dated 27-11-2018 in case of Veena Realcon Pvt. Ltd was the case of society redevelopment wherein Hon. Commissioner held that service tax is not payable on the free flats given to the existing members of the society 18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Relevant Legal Precedent  Imperial Dream Homes [Order in Appeal No. PVNS/466/Appeals-Thane/TH/2018-19/845 dated 28.03.2019] wherein the authority has held that service tax is not payable on the free flats given to the existing members of the society

 Ethics Infra Development Private Limited vide Order in Original No. V/Adj/SCN/15-51/Ethics/CGST

Thane/2018-19/5174 dated 26.11.2019 also held that held that construction of rehab services is not taxable.

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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Word of Caution  Views expressed are the personal views of faculty based on his interpretation of law

 Presentation needs to be revised and revisited on future amendments in GST Law  Presentation is made for the benefit of participants of the webinar which is arranged with clear

understanding that neither Faculty nor Taxmann will be responsible for any error or omission in the presentation

18th October, 2023

CA Parag Mehta & CA Ankit Joshi

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