11 FAQs on TDR in Real Estate Under GST

The introduction of GST has made important changes to the taxation system, especially in real estate transactions. Now, GST on Transfer of Development Rights (TDR) is made applicable at the tax rate of 18% making sure that taxes are paid reducing the chance of people avoiding taxes. In this article, we will cover TDR supply by the landlord and FAQs on GST on TDR in real estate 

1. Who is a developer?

A developer or promoter is a person who develops a plot into apartments and promotes it for sale.

2. Who is a landowner?

A landowner is a person who transfers the plot or his development rights to a developer. To get a properly built apartment on such a plot and to further independently sell such apartments to the buyers.

3. What is TDR?

From the above statements, we can conclude that the landlord transfers his development rights to a developer. And for such a transfer, he gets either the constructed units or money or both. Hence, these rights are commonly known as Transferable Development Right (TDR).

4. Whether TDR is taxable?

TDR is not taxable under GST until or unless the development rights are transferred to construct residential units and that is GST on TDR purchase on commercial buildings. However, there is a catch that these units shall be sold before the completion certificate date or first occupancy. In other words, TDR under GST will be taxable if the units are sold after receiving a completion certificate or first occupancy. Next, you'll know about GST on TDR and FSI sale and taxability of TDR under GST.

5. If TDR is taxable on the construction of commercial units?

TDR under GST is not taxable on residential property where the result from such transfer is a residential unit. On the contrary, the TDR service will be taxable for the construction of commercial units.

6. What should be taxed?

GST will be applicable on the supply of TDR when-

There are some residential units left in inventory after the receiving completion certificate.

Commercial units

Let us understand this with an example:

• If there is a 100 unit’s project including flats and shops.

• Out of which 60% are residential units i.e. 60 units (40 units are sold before completion certificate and the remaining 20 are left as stock) and

• 40 units are commercial shops.

In such a case, GST will apply to the supply of TDR service to an extent of 20 residential units and 40 commercial units.

7. What Value ought to be considered for taxability?

The value of the supply of goods against consideration will be equivalent to the value charged from the buyer, nearest to the date of TDR.

8. Who will pay GST on the supply of TDR?

The GST on transferable development rights service falls under the reverse charge mechanism (RCM). In simple words, the developer to whom the TDR GST has been supplied will be liable to pay GST on TDR.

9. When does one have to pay the GST on TDR sale services?

One shall pay GST on TDR sale services either

• On the date of Completion certificate; or

• 1st occupancy (Whichever is earlier)

In simple words, GST on TDR has to be paid at the end of the project.

10. How to find an exemption amount in case if a developer builds both commercial and residential units on the same plot?

If a developer builds both commercial and residential units on the same plot, then the exemption can be calculated by the following formula –

Exemption amount = GST on TDR (consisting addition FSI) X Carpet area of a residential unit in the project ÷ Total carpet area of both commercial and residential unit in the project.

11. What shall be done if the landlord receives money as consideration from a developer for the supply of TDR services?

In such a case the developer would not have to pay GST on TDR as he will not be rendering construction services to the landlord. But, for the rights received, he will be paying such an amount as a consideration to the landlord.

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