GST on sale of land in exchange of apartments

[Narayan Pujar]

Hi,

In a JDA, a landowner transfers the development rights to developer in exchange of newly constructed apartments. GST law provides for taxability in such cases.

However, the other day I heard of an agreement wherein the landowner has sold the land through a sale deed in exchange of apartments/shops. In this, since one leg involves direct land transfer, it would not be liable to GST as per Schedule III.

My question is: Since direct land transfers are exempt under GST, why do people prefer Joint Development Agreements (JDAs) over outright land sales, even though development rights in a JDA attract GST? Additionally, the second leg of the transaction remains the same in both cases.

Could this preference be due to implications under other laws? If yes, then what would they be?

[Sadanand Bulbule]

Dear

Once there is an outright sale of land to the developer, the question of "Transfer of Development Right" attracting GST liability does not arise.However JDA might be for various other factors. Every JDA need not attract tax liability.

[Shilpi Jain]

Without receiving any consideration, the landowner would be at the mercy of the developer if he would execute a sale deed for a consideration to be received in the future. That's why they execute a JDA.

[Manoj Thakur]

Also depends on whether the land owner's rights are leasehold or freehold. Situation was different pre 1.4.2019 when 6 notifications in related matters attempted to define a clearer path. In both service tax and GST regimes, handling of society redevelopment transactions has been has been open to doubts. Supreme Court's validation of the Vasantha Green Projects case is expected to clear the matter on service tax at least. Extension to GST may come in future, till when such notices and orders are expected to continue to litigate.

AI Summary

GST on transfer of development rights affects structuring of land transactions, driving preference for joint development agreements. Whether a sale deed in exchange for apartments is outside GST depends on whether the transaction is treated as a direct land sale (outside GST) or as a transfer of development rights (GSTable); an outright sale typically avoids GST on development rights, whereas a JDA often attracts GST on the developer's consideration. JDAs are commonly preferred to secure the landowner's consideration and allocations, and selection of structure also depends on leasehold versus freehold status and on continuing administrative and litigation uncertainty in redevelopment transactions.