Court Upheld the Applicability of GST on Transfer of Land development Rights under JDA, Distinguishing it from Sale of Land
GST on Transfer of Land Development Rights: In a significant development, the Telangana High Court has rejected a writ petition filed by a real estate company challenging the imposition of GST on the transfer of land development rights (TDR) on Joint Development Agreements (JDAs) for residential projects. This ruling validates the notification for imposing taxes in such transactions.
The petitioner, Prahitha Construction Private Limited, approached the High Court seeking relief from GST on the transfer of land development rights to developers under a JDA, arguing that it should be treated similarly to the sale of land, which is not subject to GST. However, the court upheld the applicability of GST on the transfer of development rights under a JDA, distinguishing it from the sale of land.
A JDA is a legal contract that facilitates collaboration between landowners and developers for land development projects. It’s a prevalent practice in India’s real estate sector. Under GST, there are two options: pre-March 31, 2019, attracting 18% GST with input tax credit (ITC), and post-April 1, 2019, with a reduced rate of 1.5/7.5% without ITC. Several rulings by the Authority for Advance Rulings (AAR) have supported the imposition of GST on such transactions.
Amit Maheshwari, Tax Partner at AKM Global, commented on the court’s decision, highlighting that the transfer of development rights under a JDA is taxable under GST. He emphasized the distinction between the sale of land and the transfer of rights for land sale, clarifying the tax obligations in complex real estate transactions.
This ruling is pivotal as it reinforces the government’s stance and provides clarity to industry stakeholders regarding tax liabilities in real estate transactions under the evolving GST framework. It underscores the exhaustive nature of the exclusion of land sale from the definition of supply under Schedule III, making the transfer of development rights taxable unless specifically exempted.
Abhishek A Rastogi, founder of Rastogi Chambers, who represented the petitioner, noted that while further examination of the order is necessary, the constitutionality aspect will be addressed by the Supreme Court. The matter will determine whether a notification can impose tax on transactions akin to the sale of land.
In conclusion, the Telangana High Court’s decision solidifies the tax implications of transferring land development rights in JDAs, providing clarity and guidance to the real estate industry within the GST framework.
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