Joint Development Agreement (JDA) by Mr CA Jithendar Patel
What is a Joint Development Agreement (JDA)?
A JDA is a legal contract that allows land owners and developers to come together, for the purpose of developing land. At present, JDA is a common form of property development in India across sectors.
In this arrangement, the landlord would provide the land and the entire responsibility of carrying out the development of the property will lie with the developers. This includes getting all the necessary approvals for future development and marketing the project. The landlord can either ask for a specific share in the sales revenue, under what is known as a revenue-sharing JDA, or claim a certain portion of the developed area, under an area-sharing JDA. This will depend on the terms and conditions in the JDA.
What are the benefits of entering a Joint Development Agreement?
“A Joint Development Agreement (JDA) is beneficial for both the owner as well as the developer. It is a common procedure nowadays and a win-win situation for both the parties. Herein, the resources and the efforts of the landowner and the developer are combined together so as to bring out the maximum productive result post-construction.
Some of the significant benefits of entering into a JDA are:
- No initial investment is required for land procurement.
- Partial avoidance of stamp duty.
- Fast-paced development of the property as working capital is majorly required for meeting the construction needs.
- Competent consideration for the landlord.
What are the disadvantages of Joint Development Agreements?
- Real estate involves long-term commitment. The longevity of the process is often marred by disagreements and disputes.
- During the long process, a lot many new rules governing joint developments may come into play, often posing a risk to the arrangement.
- All that the two parties have agreed upon on paper, may not be turn out to be as well as initially expected.
- Joint development agreements are complex in nature and must not be entered into with a light approach or without legal assistance.
GST Implications in case of Joint Development Agreements:
We can find 3 types of transactions in every JDA:
1) Transfer of Development Rights by Landowner to Developer or Builder
2) Transfer of Construction services by Developer or Building to Landowner
3) Normal sale of Developed area by Landowner and Developer
Transfer of Development Rights by Landowner to Developer or Builder
(a) Joint Development Agreement (Residential Real Estate Project) Entered on or after 01-04-2019:
i) In case of a Joint Development Agreement entered on or after 01-04-2019, for the transfer of development rights by a landowner, GST needs to be discharged by the Developer or Builder under the Reverse Charge Mechanism.
ii) The Same is exempted for construction of residential apartments except where entire consideration has been received after issuance of CC or OC.
iii) Time of Supply: The liability to pay GST on the said portion of the development rights or FSI, or both, calculated as above, shall arise any time before issuance of CC or First occupation [Not No. 03/2021 – CT(R) effective from 2nd June 2021]
iv) Rate of GST: 1% or 5% in case of affordable housing projects and other than affordable housing projects respectively.
(b) Joint Development Agreement (Commercial Real Estate Project) entered after 01-04-2019:
i) In case of a Joint Development Agreement for commercial projects entered on or after 01-04-2019, for the transfer of development rights by the land owner, the landowner needs to pay GST Liability.
ii) Time of Supply: The liability to pay GST on the said portion of the development rights or FSI, or both, calculated as above, shall arise any time before issuance of CC or First occupation [Not No. 03/2021 – CT(R) effective from 2nd June 2021]
iii) Rate of GST: 12%
Transfer of Construction services by Developer or Builder to Landowner:
(a) Joint Development Agreement (Residential Real Estate Project) Entered on or after 01-04-2019:
i) Construction services provided by developer or builder to landowner; this is also a supply under GST as the consideration is in the form of development rights. Developers need to pay GST on this transaction.
ii) Time of Supply: The liability to pay central tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise any time before issuance of CC or First occupation [Not No. 03/2021 – CT(R) effective from 2nd June 2021]
iii) Rate of GST : 1% or 5% in case of affordable housing projects and other than affordable housing projects respectively.
(b) Joint Development Agreement (Commercial Real Estate Project) Entered on or after 01-04-2019:
i) Construction services provided by developer or builder to landowner; this is also a supply under GST as the consideration is in the form of development rights. Developers need to pay GST on this transaction.
iv) Time of Supply: The liability to pay central tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise any time before issuance of CC or First occupation [Not No. 03/2021 – CT(R) effective from 2nd June 2021].
v) Rate of GST: 12%
Normal sale of Developed area by Land owner and Developer:
This transaction is very normal to either the land owner or developer.
i) Value of Supply: Transaction value as per section 15 of Central Goods and Services Tax Act, 2017.
ii) Time of Supply: As per section 13 of Central Goods and Services Tax Act, 2017, date of invoice or date of payment whichever is earlier.
iii) Rate of GST: 1% or 5% in case of affordable housing projects and other than affordable housing project respectively and 12 % in case of commercial real estate project
There are certain other taxation aspects which we need to look into which have not been covered so as to understand the provision in a simpler way.
About the Author: This Article is Authored by Mr. CA Jithendar Patel, Founder JKPP & Associates, He has 12 years of experience in auditing & assurances, direct & indirect tax consultation & other allied tax matters. Mr. Patel is a seasoned chartered accountant and an active member of the study circle meeting group on GST at the Hyderabad Branch. He is a prolific speaker on matters relating to GST & other professional issues on several forums. He has a flair for writing and enjoys imparting knowledge in his field and ca be reached at info@cajkpp.com
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