• GST on land owner flat in a JDA

Dear Sir/Madam, 
Our family got into a JDA with a reputed builder in Chennai on April 9 2017 before the introduction of GST. At that time the builder expected approximate tax of about Rs 1.5 Laks/flat. 

The project has reached completion now and the builder has sent a notice claiming GST of 10 Lakhs/flat at 18% GST rate taking construction cost of Rs 4500/sq ft when the prevailing construction cost for similar work is at the max is Rs 2000/sq ft..

From browsing internet I learn that there are multiple ways to arrive at the value of the construction service. ( Market Value/ Similar Quality Service/ Construction Cost+10%) What is the optimum GST rule to compute the value of the construction and what GST rate is applicable in this case. From April 2019, the GST is only 5% for builder if the builder uses registered supplier. So why the builder is charging land owner 18%?

Kindly advice
Asked 13 days ago in GST from Bangalore, Karnataka

Hi,

 

In case of JDA, following are the implications under the GST law.

1) Tax on supply of development rights. 

2) There are no specific rules of valuation of cost for residential real estate projects. It depends on the location and other aspects.

3) From 01.04.2019, GST rate reduced on real estate projects where there is a supply of flat or apartment. In yoir case, developer is providing construction service which attracts 18%.

 

Thanks

Vivek Kumar Arora
CA, Delhi
3025 Answers
155 Consultations

5.0 on 5.0

Hello,

 

GST rate of 5%/1% is applicable for under-construction property or ready-to-move-in property where the completion certificate is not issued at the time of sale.

While the builder in the case is charging 18% for his construction services which is taxable at 18%.

Under GST, the taxable value is the transaction value i.e. price actually paid or payable. The valuation methods mentioned by you in the question are applicable in the case where consideration for a supply is not solely in
money or when parties are related. For construction cost variation you need to talk to the builder.  

 

I hope that this answer satisfies your requirements.

 

Regards,

CA Hunny Badlani

Badlani & Associates

Hunny Badlani
CA, Madhya Pradesh
921 Answers
1 Consultation

5.0 on 5.0

Dear Sir,

 

Hope you are doing well !!

 

GST@18% is applicable on construction services.

 

As the Builder is providing construction services so he is charging correct GST.

 

The value of supply shall be determined using the Valuation of Supply Rules explained by Section 15 of Central Goods and Services Tax Act, 2017 in case of calculation of the value of supply relating to JDA. Valuation should be based upon the actual transaction value or cash consideration received.

Therefore, to conclude when a developer enters into a development agreement with a Landowner, GST would become payable by the Landowner when the developer transfers possession or the rights in the constructed complex, building or civil structure, to the Landowner by entering into a conveyance deed or allotment letter. Hence, when the Landowner receives a constructed property from the Developer in exchange for providing land, the Landowner would become liable for payment of GST. The GST rate applicable on such a transaction would be 18%.

 

 

 

 

 

 

Payal Chhajed
CA, Mumbai
2991 Answers
40 Consultations

5.0 on 5.0

As far as rate of 5% is concerned for the ongoing projects it was an option that they can choose if they wish to go for 5% without input tax credit or stay at 12% with ITC and that is also eligible for builder who sell flat to third party as they sell them a part in land also and therefore in construction service the 18% rate is converted into 12% as 1/3rd is considered as value of land.

However in your JDA case he is giving pure construction service therefore the rate will be 18% and the construction cost would be the value of similar flat being sold by him to third party plus additional cash received by you.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
2084 Answers
18 Consultations

5.0 on 5.0

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