Applicability of GST RCM on TDR

[Kalpesh Shah]

Respected Seniors & Experts

I have a Querry Relating to GST RCM on TDR as below :

Facts :

My client is a Builder Developer. He has purchased a Land by entering into Conveyance Agreement. He has also purchased TDR for which will be used for construction of Additional floors. but nothing as such is mentioned in the TDR Agreement.

Building is of Ground + First Floor (Commercial Units ) & Upper 9 floors for Residential units.

My question is :

Whether GST RCM is liable for Construction of Commercial Area with respect to Purchase of TDR ?

When calculating RCM in respect of unbooked Residential Units, I need to consider Whole constructed area or only upper floors ?

Thank you in Advance

[YAGAY andSUN]

Under the Goods and Services Tax (GST) regime in India, the Reverse Charge Mechanism (RCM) applies to the purchase of Transfer of Development Rights (TDR) for construction purposes. This means that the recipient of the TDR, typically the builder or developer, is responsible for paying GST directly to the government.

1. GST RCM Applicability for Commercial Construction with TDR Purchase:

When a builder purchases TDR for constructing additional floors, including commercial areas, GST under RCM is applicable. The builder must pay GST on the value of TDR used for constructing commercial spaces. This is because the exemption on TDR under GST is specifically available for residential apartments, not for commercial constructions.

2. Calculating RCM for Unbooked Residential Units:

In a mixed-use development comprising both residential and commercial units, the calculation of GST under RCM for unbooked residential units involves the following steps:

• Determine the Total Value of TDR: Calculate the total GST payable on TDR used for the entire project, considering both residential and commercial areas.
• Allocate GST to Residential Units: Since the exemption applies only to residential apartments, allocate the GST payable proportionally to the residential units based on their carpet area.
• Identify Unbooked Residential Units: Calculate the number of residential units that remain unbooked as of the date of issuance of the completion certificate or first occupation.
• Calculate GST for Unbooked Units: Apply the following formula to determine the GST payable under RCM for unbooked residential units:

GST on Un-booked Residential Units = (GST Payable on Residential TDR×Carpet Area of Unbooked Residential Units)/Total Carpet Area of Residential Units

• Apply Tax Rate Caps: Ensure that the GST payable does not exceed 1% of the value for affordable residential apartments and 5% for non-affordable residential apartments, as per GST regulations.

It's important to note that the exemption on TDR is available only for residential apartments that are booked before the completion certificate is issued or before the first occupation, whichever is earlier. Therefore, GST under RCM is applicable to unbooked residential units and all commercial units.

Conclusion:

GST under RCM is applicable on the purchase of TDR for constructing commercial areas. For unbooked residential units in a mixed-use development, GST under RCM is calculated based on the proportion of unbooked residential area to the total residential area, subject to the specified tax rate caps. It's advisable to consult with a GST professional or legal expert to ensure compliance with all applicable provisions and accurate calculation of GST liabilities.

Disclaimer: This is Not a Legal Opinion. Only for discussion purpose and enrichment of Knowledge. 

[Sadanand Bulbule]

Dear Yagan Sir

Kindly clarify how TDR on construction of residential apartments is exempt under the GST Act with relevant notification etc.?

[Sadanand Bulbule]

Dear all

Plz refer the clarification issued at Sl.No. 7 of the following on the query:

F. No.354/32/2019-TRU  dated 14/05/2019 of the Government of India, Ministry of Finance.

[Sadanand Bulbule]

Text at Sl No. 7 is reproduced hereunder:

7.

In the formula prescribed under first proviso to Entry 41A of the Notification 12/2017- CT (R), as amended by Notification 4/2019 CT (R), what rate shall be taken to determine the value to be ascribed to the “GST Payable on TDR or FSI or both for construction of the residential apartments in the project but for exemption contained therein” as no specific rate has been prescribed in Notification 11/2017 CT-Rate or any other notification? What is the rate applicable to output supply of TDR or FSI?  Whether the quantum of TDR or FSI (including additional FSI) or both shall be taken only in respect of un-booked apartments as on the date of issuance of Completion Certificate or first occupation of the project for the purpose of formula?

The GST on transfer of development rights or FSI (including additional FSI) is payable at the rate of 18% (9% + 9%) with ITC under Sl. No. 16, item (iii) of Notification No. 11/2017 - Central Tax (Rate) dated 28-06-2017 (heading 9972).   There is no exemption on TDR or FSI (Addl. FSI) for construction of commercial apartments. Therefore,  GST shall be payable on TDR or FSI (including additional FSI) or both used in respect of  carpet area of commercial apartment and un-booked residential apartments as on the date of issuance of Completion Certificate or first occupation of the project for the purpose of formula.

[Sadanand Bulbule]

Plz also refer Notification No. 04/2019-Central Tax(Rate) dated 29/03/2019 to determine the time of supply of TDR for RCM purpose.

[Sadanand Bulbule]

2024 (5) TMI 1254 - SC ORDER - PRAHITHA CONSTRUCTIONS PRIVATE LIMITED VERSUS UNION OF INDIA & ORS.

Levy of GST - transfer of development rights of land by the land owners to the petitioner by way of a Joint Development Agreement - it was held by High Court that 'In the absence of any cogent and substantial material to establish right, title and ownership being created in favour of the petitioner/developer, the transfer of development rights as it stands is amenable to GST and cannot be brought within the purview of Entry 5 of Schedule-III of the GST Act.' - HELD THAT:- Issue notice, returnable in the week commencing 09.09.2024.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, A huge thank you very much for clearing the air by way of posting this judgment.

[Sadanand Bulbule]

Dear Sirji

Much obliged. 🙏🙏

[Shilpi Jain]

Assume if TDR was not purchased you could have constructed X no. of floors?

The TDR purchased ideally has only allowed you to construct additional floors which could be regarded as being for residential units.

You can pay GST on the unsold units in the additional area that is constructed out of the TDR.

[Shilpi Jain]

Pls also note that prahita decision is pending before the Supreme Court.

[Sadanand Bulbule]

Impliedly, the judgement of Hon’ble Telangana High Court is binding on all the stakeholders as regards to liability to pay GST on TDR in the hande of the developers. Law is paramount than its interpretation. 

[Sadanand Bulbule]

2025 (5) TMI 633 - PATNA HIGH COURT - SHASHI RANJAN CONSTRUCTIONS PRIVATE LIMITED VERSUS UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, STATE OF BIHAR, ASST. COMMISSIONER OF STATE TAX, MUZAFFARPUR.

Challenge to order and summary of order - challenge to N/N. 09/2023 dated 31.03.2023 as contained in Annexure-P8 and the N/N. 56 of 2023 dated 28.12.2003 - extension of time limit specified under sub-section (10) of Section 73 of the CGST Act for issuance of order under sub-section (9) of Section 73 of the GST Act for recovery of tax not paid or short paid or input tax credit wrongly availed or utilized upto 31st March, 2024 for the Financial Year 2018-19 - main contention of petitioner is that the impugned order has been passed without consideration of the provisions of the Act, the rules made thereunder and also notification fixing the liability only in respect of the development agreement on or after 01.04.2019 - violation of principles of natural justice - mistake of fact apparent on the record or not.

HELD THAT:- The petitioner does not get any right on the said property until the completion of the project. After the project is completed and completion certificate is issued, the petitioner gets a right to sell the area of the property which is called “Developers Area”. There are no substantial material to establish that with execution of the development agreement, the petitioner got ownership in the land. It is held that the transfer of development rights as it stands is amenable to GST and cannot be brought within the purview of sale of land subject to clause (b) of Paragraph 5 of Schedule II, sale of building (as per Entry 5 of Schedule-III of the GST Act).

The petitioner has not controverted the submission of the State that vide notification no. 11/2017 dated 28.06.2017, construction of a complex, civil structure etc. intended for sale to a buyer was made exigible to GST except where the entire consideration has been received after issuance of completion certificate or after its first occupancy, whichever is earlier. In this case, it has been specifically pleaded by the State-respondent that the consideration had been received by the petitioner in the form of transfer of development rights, which happened long before the issuance of completion certificate or first occupancy. This Court agrees that in this case, the petitioner cannot claim that it had received the consideration after the issuance of completion certificate or first occupancy.

The State-respondents are correct in contending that the construction of a complex, civil structure etc. intended for sale to a buyer was made exigible to GST except where the entire consideration has been received after issuance of completion certificate or after its first occupancy, whichever is earlier. There would be no ambiguity in the above-mentioned notifications.

Conclusion - There is no ambiguity with regard to liability of the petitioner on account of ‘GST’ on ‘RCM’ basis on the constructions services rendered by him in lieu of the developments rights under the Development Agreement dated 27.11.2014.

There are no reasons to entertain the present writ application - application dismissed.

AI Summary

Developer's TDR Purchase Triggers Complex GST Reverse Charge Calculation for Mixed-Use Building Construction Under Section 9(3) A builder developer purchased Transfer of Development Rights (TDR) for constructing additional floors in a mixed-use building with commercial and residential units. The key legal issue involves GST Reverse Charge Mechanism (RCM) applicability. GST RCM is liable for commercial construction using TDR, and for unbooked residential units, calculation involves proportional allocation based on carpet area, subject to tax rate caps of 1-5% depending on residential unit type.