A brewing legal dispute is gaining traction as real estate developers challenge the imposition of an 18% Goods and Services Tax (GST) on the transfer of development rights within joint development agreements (JDAs). Developers assert that JDAs, which involve a collaboration between landowners and developers, should not be taxed under GST as they do not constitute the sale of land.
The conflict intensified recently when a developer sought intervention from the Supreme Court after the Telangana High Court ruled in favor of the tax. The Supreme Court has demanded a response from the central government, scheduling the next hearing for September 9. In the interim, developers and landowners must adhere to the High Court’s ruling and continue remitting the tax.
In JDAs, landowners contribute their land, while developers are responsible for constructing buildings and infrastructure. According to Sanjay Dutt, managing director of Tata Realty, the GST should not be applicable to JDAs. “GST can be levied if land is sold to a third party, but in a JDA, there is no actual sale of land, hence it should be exempt from GST,” Dutt remarked. He added that this tax imposition could render many real estate projects financially unviable, eventually shifting the cost burden onto homebuyers.
Dhaval Ajmera, director of Ajmera Realty & Infra India, argued that GST applies to services, and JDAs do not fit this category since they do not involve traditional service provision. Ajmera also noted that developers already pay stamp duty on these agreements, making an additional GST redundant and financially burdensome.
Tax professionals support the developers’ stance, suggesting that development rights linked to land should not be subject to GST. Abhishek A Rastogi, founder of Rastogi Chambers and a legal representative in the Supreme Court case, stated that development rights are incidental to land transactions and should be excluded from GST, which explicitly omits land supply from its scope.
Shareen Gupta, a partner at JSA Advocates and Solicitors, highlighted the complexities surrounding the issue. While current legislation does not clearly tax these transactions, certain notifications about the valuation and timing of services hint that JDAs might fall under taxable services. Gupta also indicated that from a different perspective, land development could be considered a taxable service similar to construction or leasing.
As the real estate sector awaits the Supreme Court’s verdict, the outcome could significantly alter the taxation landscape for JDAs in India. This case underscores the ongoing tension between tax authorities and the real estate industry over GST interpretation and application in intricate real estate agreements. The decision will be pivotal in determining how JDAs are treated under the tax regime, potentially reshaping the financial and operational frameworks for developers and landowners alike.