GST On Flats Given To Society Members Under Development Agreement.

[Pradeep Singhi]

Sir,
Developer enters into development agreement (DA) with society members/tenants. In lieu of FSI,Development Rights few constructed flats are given to existing tenants/society members and few flats are sold to independent buyers. Land continues to belong to society.

Explanation 2A to rate notification 11/2017 states,

'2A. Where a 110[*] person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, the value of construction service in respect of such apartments shall be deemed to be equal to the *Total Amount charged for similar apartments in the project from the independent buyers*, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above.]'

--> Units sold to independent buyers includes value of land, same value cannot be made applicable to units given by builder to land-owner/society as land continues to be under the ownership of society/landowner.

Question 1) How to determine the taxable value of units given by builder to society-members/Landowner in lieu of FSI/Developement Rights when land belongs to society/landowner?

[Rajagopalan Ranganathan]

Sir,

As per paragraph 1A of Notification No. 12/2017 C.T. (Rate) dated 28.6.2017 as amended by Notification No. 4/2019-C.T. (Rate) dated 29.3.2019 (with effect from 1.4.2019) value of supply of service by way of transfer of development rights by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from independent buyers nearest ti the date on which such developement rights is transferred by to the promoter. You have to deduct the value of land from the valuemof apartments charged by the promoter.

[Shilpi Jain]

As per para 2 of the services rate notification, you would be eligible for deduction of 1/3rd value of the first sale value - being the deemed value of the land. Thereby you would have to pay gst on the 2/3rd value of the first sale value closer to jda in the project.

[Pradeep Singhi]

First of all,

1) When there is no transfer of land taking place why do we have to include the value of land?

2) Land component in any case is a way - way higher then 1/3 deeming provision. In addition to it, there is no monetory consideration flowing from Society members to Developers?
e.g. FSI given by society against construction services of alloted apartment. (Land belongs to society only)

3) Society re-development has majority tenants and only few extra units to be sold to independent buyers which the builder enjoys. Any time of Consideration received by the builder is from these few independent buyers only. There is no way, the charge of GST could never be passed on to the society members as they would never agree to pay GST including value of land.

Let say a society of 50 tenants undergoes redevelopment for construction of 75 units (25 units shall be sold by builder to independent buyers) and society tenants gets newly constructed unit against FSI provided to builders.

Taxability :

a) Since, Independent buyers would enjoy proportionate area in the society - GST would be 5% on market value including value of land.

b) Tenants only gets constructed unit as land continues to belong to society - Its unfair to value supply including value of land.

[Bayyareddy DK]

Sir,

Promoter shall be liable to pay tax at applicable rate, on reverse charge basis, proportion of the development rights, as is attributable to residential apartment, which remain un-booked on the date of issuance of complete certificate, or first occupation of the project, as the case may be, which ever is earlier.

AI Summary

Valuation of development rights: deemed apartment price less land component determines GSTable value on construction services. Valuation for construction services in exchange for transferred development rights is deemed equal to the promoter's price for similar apartments sold to independent buyers, less the value of land; the applicable rate notification permits deduction of a prescribed land component and GST is payable on the residual value, with promoters potentially liable under reverse charge for the proportion attributable to unbooked apartments at completion or first occupation.