GST on Joint Development Agreement

An agreement between a landowner and a real estate developer to construct new projects is called a Joint Development Agreement. In a joint development the capital, the builder carries out construction and legal work whereas the landowner provides the land. There are two common types of JDA. They are as follows:

Area Sharing JDA
Revenue Sharing JDA

The key feature of JDA is that the landowner contributes land and developer undertakes the responsibility of obtaining approvals, property development, launching and marketing the project with his financial resource. Hence, Joint Development Agreements are very common in the real estate industry in India. In this article, we look at the applicability of GST on Joint Development Agreement in detail.

Advantages of Joint Development Agreement

Some of the main advantages of a Joint Development Agreements are:

The initial investment on land/site is not required for developer.
Stamp duty could be avoided partly.
Fast mode of development of the property, working capital requirement restricted towards approval and construction.
A secured loan is obtained by pledging land, which is obtained under JDA.
Investor/landlord will be benefitted with competent consideration.

Joint Development Agreement

The parties and transaction involved in a Joint Development Agreement are as follows:

Landowner - Developer

The Landowner provides development rights to the Developer by signing the Joint Development Agreement. The Developer in turn provides continuous supply of construction services to the Landowner over a period of time.

Developer - End Customer

The Developer enters into purchase/construction agreements with homebuyers for providing construction services. GST is applicable on the property transaction, wherein the Developer provides construction services to a homebuyer. The aspects relating to applicability of GST on property transaction involving under construction property is covered in the following article:

GST on Property Transactions - Under-Construction Flats and Completed Flats

Hence, its now important to determine the applicability of GST on the transaction between the Landowner - Developer while entering into a Joint Development Agreement.

Applicability of GST on Joint Development Agreement

To clarify the doubts of the real estate industry post the implementation of GST with respect to applicability of GST on Joint Development Agreements, the Government has released a notification on the said matter. The crux of the GST notification is as follows: When a developer enters into a development agreement with a Landowner, GST would become payable by the Landowner when the developer transfers possession or the rights in the constructed complex, building or civil structure, to the Landowner by entering into a conveyance deed or allotment letter. Hence, when the Landowner receives a constructed property from the Developer in exchange for providing land, the Landowner would become liable for payment of GST. The GST rate applicable on such a transaction would be 18%.