Introduction: The real estate sector in India is a significant contributor to the economy and has grown significantly in recent years.
The government has implemented various policies and regulations to boost the sector, including the Goods and Services Tax (GST).
The Goods and Services Tax (GST) has had a significant impact on the real estate sector, particularly in relation to the transfer of development rights (TDR).
The purpose of this article is to provide a clear understanding of the GST implications for TDR in the real estate sector, including applicable rates and exemptions for residential and commercial projects.
Meaning of TDR: TDR stands for Transfer of Development Rights. Owner of land allows promoter (builder ) to develop the land and construct on in his land. Taxability of TDR depends on whether transfer of TDR is for construction of residential apartments, or it is for the commercial units.
If the supply of TDR is used for the construction of residential apartments, Tax on TDR is to be computed on the basis of the following formula:
- GST is applicable on such value which is proportionate to the construction of apartments that remain un-booked on the date of issue of Completion Certificate/first occupation.
- The rate of tax is 18% subject to a tax amount which is limited to 1% or 5% of the value of the residential apartment depending upon whether the TDR is used for an affordable residential apartment or other than an affordable residential apartment.
If the supply of TDR of land is used for the construction of commercial apartments: GST at 18%.
Transfer of Development Rights under GST
Pursuant to recommendations by the GST Council to exempt transfer of development rights from GST taxability in certain cases, the Central Government by Notification No. 4/2019 Central Tax (Rate) (“Central Notification“), has amended notification dated 28th June 2017, bearing no.12/2017- Central Tax (Rate) which exempts certain services from the purview of GST.
Exemption on the transfer of development right is as under:
GST is no longer payable on the transfer of development rights/FSI/additional FSI provided, all of the following conditions are met:
- The transfer takes place on or after 1st April 2019;
- Development rights are transferred for construction of residential apartments by a promoter in a project (both terms as defined under RERA), intended for sale to a buyer, wholly or partly; and
- Consideration or part thereof for the residential apartments has been received before issuance of completion certificate (“BCC“) or before its first occupation, whichever is earlier.
Since the exemption is available only on transfer of development rights and/or FSI for construction of residential apartments, the exemption for projects as a whole is to be calculated as follows:
GST payable on TDR and/or FSI for construction of project * The carpet area of residential appartment in the project/ Total carpet area i.e. (total residential and the commercial carpet area of the project)
Consequence of a residential project not being fully sold on completion
Condition 3) (above) requires receipt of consideration or part thereof from the buyers of residential apartments prior to receipt of BCC or first occupation, whichever is earlier, to avail exemption on transfer of development rights since such residential apartments would be sold prior to OC, and GST would be chargeable on the amounts paid by the purchaser.
However, if some residential apartments remain unsold even after occupation, the exemption to such extent becomes unavailable. The promoter becomes liable to pay GST, (at 1% on affordable residential apartments and at 5% on other residential apartments) on reverse charge basis, on such proportion of value of development rights, or FSI (including additional FSI), or both, as is proportionate to the un-booked residential apartments, on the date of BCC or first occupation, whichever is earlier.
Commercial real estate, however, continues to attract GST as earlier and the relief extended to the residential development sector has no, as of now been extended to the development of commercial real estate.
Summary of GST rates:
| Particulars | Affordable (RREP) | Non-Affordable (RREP) | Other REP (including Commercial) |
| GST Rate(effective) on Residential Apartment. | 1% before BU without ITC. | 5% before BU without ITC. | – |
| GST Rate(effective) on Commercial Apartment. | 5% before BU without ITC. | 5% before BU without ITC. | 12% before BU with Credit. |
| Transfer of Development Rights (TDR) | Payable After BU on un booked units, The rate of tax is 18% subject to a tax amount which is limited to 1% of the value of the residential apartment. For Commercial Apartment in RREP, there is no clarity on payment and ITC. However, GST to be paid @18% on value of TDR proportionate to commercial units | Payable After BU on un booked unit, The rate of tax is 18% subject to a tax amount which is limited to 5% of the value of the residential apartment. For Commercial Apartment in RREP, there is no clarity on payment and ITC. However, GST to be paid @18% on value of TDR proportionate to commercial units | GST @18% Upon Agreement or payment whichever is earlier. |
Disclaimer: This Article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update etc. if any.
Published on: April 19, 2023