The Bombay High Court ruled on April 8, 2025, that no Goods and Services Tax (GST) can be levied on the redevelopment of land by a homeowner or landowner through a builder in cases where development rights are not sold. This decision hinges on the distinction between the transfer of development rights (TDR) or floor space index (FSI) and the transfer of such rights under a joint development agreement (JDA).
In a typical JDA, a homeowner or landowner allows a builder to develop their land into a multi-storied apartment in exchange for money or apartments, and also pays the builder for construction services. Under normal circumstances, GST is applied twice: once for the sale of development rights (on a reverse charge mechanism, RCM, basis) and once for the construction services (forward charge GST). However, in the case under review, the homeowner paid the builder Rs 7 crore and received 2 apartments without selling the development rights, leading to a dispute over GST liability.
The government argued that Entry 5B of the Central GST notification, which pertains to services supplied by way of TDR or FSI for construction projects, should apply, making the builder liable to pay GST on an RCM basis. The builder’s lawyers countered that no TDR or FSI was purchased or transferred, and thus GST was not applicable. The High Court agreed with the builder’s interpretation, ruling that no GST was required in this specific case.
The court’s decision has significant implications for redevelopment projects. It clarifies that GST does not apply to JDAs where development rights are not explicitly sold or transferred. This ruling could potentially reduce the tax burden on homeowners and landowners involved in redevelopment projects, though its applicability may be limited to cases with similar contractual arrangements. The broader impact on the real estate sector remains to be seen, as the issue of GST on development rights continues to be a contentious matter.
Source #ET
