The Nagpur bench of the Bombay high court has held that Goods and Services Tax (GST) is not applicable to the transfer of development rights (TDR) or floor space index (FSI) as part of a development agreement.
The petitioner, Shrinivasa Realcon Private Ltd, challenged a notice from the GST department saying it is liable to pay GST on TDR based on a 2017 notification issued by the Central Board of Indirect Taxes and Customs. The notice pointed to clause (5-B) in the notification, which reads: “Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI)… for construction of a project by a promotor.”
TDR is a tool that allows property owners to transfer their unused development rights to another location, usually in exchange for monetary compensation. FSI is the ratio of a building’s total floor area to the size of the plot—it helps measure how much construction is allowed on a piece of land.
According to the petition, Shrinivasa Realcon signed a development agreement with the landowner in January 2022 to construct a multi-storey complex on an 8,000 sqft plot of land for the monetary consideration of ₹7 crore and two apartments. The petitioner argued that this transaction did not constitute a supply of TDR. It added that the GST Act itself does not have a definition for TDR.
The respondent, the GST department, linked entry 5-B of the notification to a clause in the development agreement, arguing it implied a transfer of TDR that attracted GST.
However, the court agreed with the petitioner that the rights of a developer as part of a development agreement are distinct from the transfer of TDR or FSI. Therefore, GST cannot be applied to TDR transactions, it ruled.
