Transfer of Development Rights--Whether Taxable Under GST
CA. Ajay Joshi
Under the arrangement of Transfer of Development Rights, the owner of land allows promoter to develop the land and construct apartments in his land. The term development right is not defined under the GST Law or the notifications issued in this regard. Notifications issued under GST have also not touched the question as to whether development rights are taxable or not. The issue is examined by the learned author in this write up with the help of statutory provisions and notifications on the subject.
1. Introduction
The term development right is not defined under the GST Law or the notifications issued in this regard. The term was not defined also under the earlier service tax law or VAT law.
Simply defined, Development rights can be meant to convey right to carryout development or to develop land or building or both. Landowner transfers development rights to the developer who undertakes development/construction of the project.
Transfer of Development Rights means the owner of land allows promoter to develop the land and construct apartments in his land. This is different from Transferable Development Rights. In case of Transferable Development Rights, Government (local authority) gives an instrument to land owner, for surrender of his right, to either use it or sale it.
2. Transfer of Development Rights
Landowner may sell development rights to the land owner in following three ways, namely :--
(i) Transfer for cash
Landowner transfers development rights for cash. In such cases normally there is sale of both land as well as development rights and developer constructs the apartments on his own accounts.
(ii) Revenue sharing arrangements
Landowner transfer development rights in lieu of development/ construction undertaken by the developer. The constructed flats are sold and proceeds are shared between the landowner and the developer. These are called revenue sharing arrangements.
(iii) Land sharing arrangements
Landowner transfer development rights in lieu of development/ construction undertaken by the developer. Developer retains some flats with himself and hands over possession of remaining constructed flats to the landowner. Both of them separately sell the flats in their respective possession. These are called land-sharing arrangements.
3. Development rights under GST Law so far
The question whether a development right are taxable or not under GST is not very clear even after around three years of implementation of GST.