GST and Income Tax Implications on Plotted Development by Revenue Share JDA between Landowner and Developer

• General Outline of Business Transaction of JDA for Plotted Development:

Landowner (LO) owns large land parcel (say 20 or 30 or 50 Acres). LO enters in Joint Development Agreement (JDA) with Developer on Revenue Share basis.

JDA for Plotted Development broadly has following contents:

1. LO transfers Development Rights to Developer.
2. LO grants licence to Developer to enter the land parcel for developing infrastructure (like internal roads with streetlights, Pavements, Storm Water Drains, Drinking Water Facility, Building Sewage Treatment Plant, Developing Landscape, Building club House, CCTV Arrangement, Compound Wall, Main Gate and Watchman Cabin, Solar Panels for Common Area Lighting, Underground Tanks etc)
3. Developer is responsible for sub-plotting the entire big land parcel in smaller plots and creating separate property cards/ownership for each of the sub-plot.
4. Developer bears entire development cost and approval cost. There may be sharing of some cost in some JDA’s.
5. Developer identifies buyers who will buy developed plots. Tripartite Agreement (LO, Developer, Buyer) is entered for sale of sub plots.
6. Revenue from Sale of Plots is shared between LO and Developer. Developer is responsible for Sale of plots and LO issues Power of Attorney (PoA) to LO for signing all agreements on his behalf.
7. Developer will construct a Club House for all plot owners and will charge them for Club Membership fees as one-time charges for membership and annually charges club maintenance charges from all plot owners.
8. Plot owners can construct a bungalow/villa/duplex as per his choice and at his cost on the plot. There can be no commercial development on the plot
9. Developer will retain ownership of entire infrastructure & maintain it. Developer will charge maintenance charges on quarterly basis form all plot owners.

• PART I - GST implication on Transfer of Development Rights by LO to Developer for Plotted Development:

GST on RCM Basis on promoter on receipt of development rights.

Notification 13/2017-Central Tax (Rate) dated 28.06.2017 mentions Entry 5B

Which deals with RCM on Supply of Service by way of transfer of development rights and RCM liability is payable by promoter. This was inserted by Notification 05/2019 -Central Tax (Rate) dated 29.03.2019. Promoter is defined as per section 2(zk) of RERA Act,2016.

Exemption to Promoter on utilization of FSI in Residential Apartments.

Entry 41A of Notification 12/2017- Central Tax (Rate) dated 28.06.2017 deals with exemption to promoter on utilization of FSI or Development Rights for construction of Residential Apartments. Entry 41A deals with utilization of development rights in construction of residential apartments where part/full consideration for residential apartments is obtained prior to Completion Certificate/ Occupation Certificate.

In following two cases, GST under RCM will be payable by promoter/developer:-

• In case flats pertaining to promoter/ developer area are sold after Completion Certificate/ Occupation Certificate.
• In case development rights are used for sale of developed plots and/or construction of commercial apartments.

In case of Development Agreement for Plotted Development, the development rights transferred by LO are not used for constructing residential apartments and consequentially GST @ 18% on revenue share given to LO (Consideration for Development Rights) will be payable by Developer. Developer will not be eligible for Input Tax Credit (ITC) as he is selling plot of Developed Land which does not attract GST. This is discussed in next paragraphs.

JDA should clear bring out that there is no service being provided by LO to Developer and revenue share payable by Developer to LO is consideration for transfer of development rights to Developer. As measure to save GST, the transaction should better be framed as LO transferring ownership of Land to developer and Developer selling plots to customers with condition of part consideration being paid / payable to LO.

• PART II - GST implication on Developer for Sale of Plot:

Section 7 of CGST Act, 2017 deals with scope of supply. Section 7(2) of CGST Act, 2017 mentions that activities or transactions as mentioned in Schedule III shall be treated neither as supply of goods nor as supply of services. Entry 5 of Schedule III reads as below:

Sale of Land, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Meaning:

• Sale of Land is neither supply of goods nor supply of services and does not attract GST.
• Sale of Building where entire consideration is received post occupation certificate or completion certificate is neither supply of goods nor supply of services and does not attract GST.

In Revenue Share JDA as above, Developed Plots are sold. Circular 177 of 3rd August 2022 clarifies that Sale of developed Plot is like Sale of Land and no GST is liable to be paid.  

• GST implication on Developer for Sale of Plot:

CASE I: Single Agreement for Sale of Developed Land

Section 7 read with Entry 5 of Schedule III means Sale of Land is neither supply of goods nor supply of services. Thus, where a developer enters into an agreement with customer regarding sale of Land (whether developed or not developed) for a consideration then this transaction will be treated as neither supply of goods nor supply of services and thus does not attract GST.

Circular 177 dated 3rd August, 2022 has clarified that Sale of developed Land (alongwith facilities of drainage lines, waterlines, internal roads, streetlights, landscapes, etc) is also sale of Land and is covered by Entry 5 of Schedule III of CGST Act, 2017 and does not attract GST.

CASE II:  Separate Agreement for Sale of Land and Infrastructure Development Charges

1. Sale of Land for consideration will not attract GST as per Entry 5 of Schedule III of CGST Act, 2017.
2. Agreement of Infrastructure Development Charges: This agreement is executed with each customer and is in form of contract awarded for completion of various works like drainage lines, waterlines, internal roads, streetlights, landscapes, etc for a consideration. This service provided by developer will qualify as a service under Entry 3 (xii) of Notification 11 and attract GST at 18%.

• Part III – Construction of Infrastructure Facilities by Developer

Provisions in GST related to Work Contract Services:

Section 7(1A) of CGST Act, 2017 mentions that where certain activities or transactions constitute a supply then they shall be treated either as supply of good or supply of services as referred to in Schedule II. Entry 6 of Schedule II is titled composite supply and reads as below:

The following composite supply shall be treated as supply of services namely:

1. Works Contract as defined in Clause (119) of Section 2.
2. ________________________________________________

• GST implication on Developer for Works Contract Activities by Sub-contractors:

Developer will be engaging various Work Contractors for different development activities on a labour plus material contract basis. These sub-contractors will provide works contract service, which is define in Clause 2(119) of CGST Act, 2017 as below:

“Works Contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. 

Thus, where a contractor is engaged to provide certain activities as listed in definition of Works Contract and he passes the title of the goods then such a contractor is providing Works Contract Services. This falls under scope of supply and contractor will be charging us 18% GST.

Whether developer will be Eligible to Claim Input Tax Credit of GST paid to contractors?

Works Contract as defined in Section 2(119) of CGST Act, 2017 is intended to mean a contract for different works like building, construction, repair, etc of any immovable property but the title in goods has to be passed on to the person who has awarded the contract.

In case, the ownership of all the infrastructure related facilities is not passed on to the buyer or their association then the developer is not eligible to claim ITC of GST paid to sub-contractors. This is because the developer does not satisfy the condition of Work contracts and as per sec 17(5)(c) of CGST Act, 2017 ITC of Work Contract Services is eligible only if the further supply is of Work Contract services.

In case, the ownership of all the infrastructure facilities is passed on to the association/society of all buyers of plots and the respective infrastructure development agreement mentions this fact then the developer can claim ITC of GST paid to sub-contractors. This is prone to Litigation as the relation between of all members of association/society and the developer transferring all common facilities to such as association means transferring the title to all members has to be accepted by GST department. Infrastructure Development Agreement should come across as if works contract is being awarded to Developer on behalf of all plot owners and developer agrees that he will never retain ownership of such infrastructure

The above position regarding eligibility of ITC of GST Paid to Works Contractor remain same irrespective of whether LO had sold his large land parcel or transferred development rights or transferred leasehold rights to Developer.

• Part IV – Club Membership Fees

Developer will raise Tax Invoice on plot owner and GST @ 18% is payable as per Entry No 33 of Notification 11/2017 - Central Tax (Rate) dated 28th June 2017. HSN code will be 999599.

• Part V – Quarterly Maintenance Charges

Developer will be raising Tax Invoice on Quarterly basis for maintenance charges and GST @ 18% will be payable by plot owner. This is as per Entry No 16 of Notification 11/2017-Central Tax (Rate) dated 28th June 2017 with HSN as 997221.  

Queries on JDA on Revenue Sharing Basis for Plotted Development:

1. Situation and Query: What is the GST Liability on the developer if developed plot is sold to a buyer? Whether developer will be eligible for ITC of GST paid to sub-contractors?

Response:Nil. The agreement with buyer can mention the facilities being developed for all the customers but consideration should be only for Sale of Developed land. There should be no separate and additional consideration for any other services/facilities. Developer will not be eligible for any ITC of GST paid on Input Services.

2. Situation and Query: Will developer be eligible for ITC if he enters into two agreements for - Sale of Land, Infrastructure Development Agreement mentioning that ownership of Entire common areas with all facilities/amenities/equipment will pass on to the association of members.

Response: YES, but this claim of ITC is highly prone to Litigation and nexus between customers and members of associations has to be established before GST authorities and they should accept it. To better fortify claim of ITC the Infrastructure development agreement should state that the plot owner along with all plot owners is awarding contract to Developer for constructing the infrastructure development facilities.

3. Situation and Query: Assume developer leases land for 60 years / 99 years / perpetuity then will ITC Eligibility will change if property of all common facilities/amenities is not passed on to the association/society?

Response: ITC is not eligible as definition of Works Contract is not satisfied.

4. Situation and Query: Development Rights are transferred by LO to Developer and consideration for Development Rights is paid by developer in form of revenue share to LO. Will such revenue chare attract GST?

Response: Yes. Entry 41A of Notification 12/2017-Central Tax (Rate) dated 28th June 2017 exempts GST when development rights are utilised for constructing residential Apartments. If not used for constructing residential apartment then GST as per Entry 5B of Notification 13/2017-Central Tax (Rate) is payable by Developer on Reverse charge mechanism (RCM) basis. GST rate is 18% and GST will be payable on revenue share paid to LO as consideration for development rights. 5. Situation and Query:

5. Whether GST will be payable on club membership fees and quarterly maintenance charges. If yes, then at what rate?

Response: Yes, GST @ 18% is payable on club membership fees and maintenance charges.

Income Tax Implications

Part I – TDS Implications:

Transaction : TDS on Development Rights transferred by Landowner to Developer:

Whether Development Rights are immovable property or not is a litigant matter. To err on caution, Developer should apply TDS @ 1% under Section 194-IA and deduct on every payment of revenue share by Developer to LO.

Transaction : Sale of Developed Land by developer to customer for single consolidated consideration

Customer is a buyer of land and he will be liable to deduct tax under section 194-IA of Income Tax Act,1961 at the rate of 1% of Consideration in case the consideration exceeds Rs 50 Lakhs.

This provision is identical in section 393 of Proposed Income Tax Bill, 2025.

Transaction : Two agreements (Sale of Land & Infrastructure Development Agreement) between Developer and Customer

Sale of Land: TDS undersection 194-IA of Income Tax Act,1961 at the rate of 1% of Consideration in case the consideration exceeds Rs 50 Lakhs.

Transaction – TDS on Infrastructure Development Agreement:

In case the customer is Other than individual or HUF then TDS under section 194C is deductible at 2% If single transaction exceeds Rs 30,000/- or Rs 100,000/- in aggregate during the F.Y.

In case the customer is individual, or HUF and his turnover/Gross receipts exceeds Rs 1cr/ Rs 50 Lakhs in business or Professional services respectively during the preceding F.Y. then TDS is deductible under section 194C at 2%, If single transaction exceeds Rs 30,000/- or Rs 100,000/- in aggregate during the F.Y.

If Individual/HUF is not covered under section 194C, then TDS under section 194M is liable at 2% in case the consideration payable by Individual/HUF to Developer during the F.Y. exceeds Rs 50 Lakhs.   

Part B – Income Tax Implications for Landowner (LO):

Revenue share received by LO will be taxable as income under “Profit and Gains of Business and profession”.  LO can claim deduction of land cost.

Whether LO can claim that capital gains will be applicable is doubtful as the moment he has entered in JDA then the nature of land can no longer be considered as “Capital Asset”.

Part C – Income Tax Implications for Developer:

Revenue share received by Developer will be taxable as income under “Profit and Gains of Business and profession”.  

Developer can claim deduction of revenue chare paid to LO, development cost, approval cost, manpower cost, sales and Marketing cost, Consultant fees, overheads incurred for project like site security etc, interest on loan taken for the project etc.

Developer should claim TDS only for the plots which are sold and revenue from those plots is offered to tax by Developer.

(Views are strictly personal)

Manoj.M.Kasture

17th August 2025