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GST Applicability on Joint Development Agreement

The joint Development agreement (otherwise known as JDA) is a contract between a landowner and real estate developer to build a new project on the land of owner. The real estate builder construct the building and other things. On the contrary, the owner of the land will provide land to construct the building. Moreover, there are 2 kinds of Joint Development Agreement (JDA) and they are:

  1. Area Sharing Joint Development Agreement (JDA)
  2. Revenue Sharing Joint Development Agreement (JDA)

However, the main question arises about the applicability of GST on Joint Development Agreement (JDA).

Parties involved in the Joint Development Agreement (JDA)

Here are the transactions and parties that can be engaged in a JDA (Joint Development Agreement) are:

  • Landowner to Developer

Under this Joint Development Agreement (JDA) the landowner has to transfer its development right to the developer. In return, the landowner gets a continuous supply of construction service from the developer over a period of time. Moreover, the GST is applicable at the time of supplying such construction services.

  • Developer to End Consumer

To provide construction services with the real estate developer enters into construction agreements with homebuyers. Moreover, on such construction services, the GST is applicable. However, there is a catch on the applicability of GST on the real estate transaction. If the property is under construct then the GST is applicable on the property transaction otherwise if the property is fully constructed then no GST is applicable on it. 

Merits of Joint Development Agreement (JDA)

Here is the list of some important merits of Joint Development Agreements (JDA):

  1. The parties can cut the cost on the stamp duty partly.
  2. For the developer, it is not required to invest in land or site initially.
  3. The property will be developed quickly and will require less working capital on approval and construction comparatively. 
  4. Under Joint Development Agreement (JDA) the party can get a secured loan by vowing the site or the land.
  5. The investor will get the most benefit as he/she will get competent consideration.

GST Applicability on Joint Development Agreement (JDA)

After the implementation of GST to sort out the doubts real estate sector regarding the applicability of GST on Joint Development Agreement (JDA) the Government has prescribed some provision regarding this through a notification on the said matter. Here is the content of such notification in layman language:

At the point when a developer comes into contract with the landowner using Joint Development Agreement (JDA), GST will be payable by the owner of the land at the time when the developer transfers back the rights or possession to the landowner by signing an allotment letter/conveyance deed.

Let us understand this with an example

If the landowner gives his land to the developer and after a while in return gets a constructed property, then in such a case the landowner will be liable to pay GST. And, the GST rate on such transfer is 18%.

GST on Joint Development Agreement