Transfer of land development rights on a Joint Development Agreement for residential projects to attract GST, rules Telangana HC

February 9, 2024

In a major ruling, Telangana High Court has dismissed a writ petition by a realtor challenging GST levy on ‘transfer of land development rights’ (TDR) on a Joint Development Agreement (JDA) for residential projects. This means notification for imposing tax will have validity.

The petitioner,  Prahitha Contruction Private Limited , moved the High Court with a prayer that when the land is transferred to the developer by the landowner under Joint Development Agreement (JDA), it should not attract GST. It was argued that GST on transfer of development rights by the landowner under a JDA is essentially similar to sale of land which does not attract GST.

Joint Development Agreement

JDA is a legal agreement that allows landowners and developers to come together to develop land. Currently, JDA is a common form of real estate development in India across sectors. There are two options for GST. One is called pre-March 31, 2019 for which GST would be 18 per cent with input tax credit (ITC). Second option iafter April 1, 2019, rate would be 1.5/7.5 per cent without ITC. A number of rulings by Authority for Advance Rulings (AAR) have upheld the applicability of GST.

Commenting on the judgement by the High Court, Amit Maheshwari, Tax Partner with AKM Global, said that the court emphasised that while the transfer of land itself is not considered a supply under GST, the transfer of the right to develop under a joint development agreement shall be taxable under GST at the time of entering into the said agreement. It has now been clarified that there is a distinction between the sale of land and the transfer of rights for the sale of land.

Pivotal ruling

“The ruling supports the notion that the exclusion of land sale from the definition of supply, as per Schedule III, is exhaustive, rendering the transfer of development rights taxable unless specifically exempted. The judgement affirms the government’s stance and the Industry stakeholders can take note of this pivotal ruling, as it clarifies the tax obligations arising from complex real estate transactions and ensures compliance within the evolving GST framework,” he said.

Abhishek A Rastogi, founder of Rastogi Chambers, who represented the petitioner said: “While we will have to go into details of the order and how the constitutionality aspect has been addressed, the matter will now be addressed by the Supreme Court to determine whether a notification can impose tax on a transaction which is akin to sale of land.”

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