Buying land and developing it into residential or commercial plots is a popular real estate business model. Often, the landowner has the land but does not want to invest in development, while the developer has the expertise and resources but does not want to purchase the entire land upfront.
This is where a Joint Development Agreement (JDA) comes into the picture.
But an important question arises: If the developer receives plots instead of money, who pays GST, when is GST payable, and can the developer claim Input Tax Credit?
Let us understand with a practical example.
1. What is a Joint Development Agreement?
Suppose Mr. A owns land worth ₹1 crore and Mr. B is a real estate developer.
They agree that Mr. B will develop the land by obtaining approvals and providing roads, drainage, water supply, electricity infrastructure and other facilities.
Instead of paying money to the developer, both parties agree to share the developed plots equally.
Example:
- 50:50 Plot-Sharing Agreement
- Original land value - ₹1 crore
- Development period - 1 year
- 50% Owner
- 50% Developer
Once development is completed, the landowner receives 50% of the developed plots and the developer receives the remaining 50%.
Assume that the JDA is signed on 14 October 2026. The agreement grants development rights to Mr. B, and the parties will identify the individual plots after layout sanction. Ownership of the developer's allotted plots will be transferred subsequently, upon completion of development.
2. Does GST apply when the landowner gives development rights?
Yes, GST can apply to the transfer of development rights even though the land itself is not being sold at that stage.
Under GST, giving the developer the legal right to undertake development is a transaction distinct from selling the land.
For a qualifying plotted-development JDA, GST at 18% is generally payable by the developer under the Reverse Charge Mechanism (RCM).
This means the landowner is not required to collect that GST from the developer. Instead, the developer pays the applicable tax directly to the Government.
The legal basis is Section 9(3) of the CGST Act and Notification 13/2017-Central Tax (Rate), as amended by Notification 05/2019-Central Tax (Rate). The Telangana Authority for Advance Ruling adopted this treatment in Vaishnaoi Infratech and Developers Pvt. Ltd.
3. Does GST apply when the developer develops the land?
Yes. Development of plots is a service.
The developer undertakes activities such as constructing roads, drainage, laying pipelines, installing utilities and preparing the land for sale as individual plots.
Even though the developer receives plots instead of a cash payment, the development service can attract GST at 18%.
This is known as Forward Charge, where the developer is liable to report and pay GST on the services supplied to the landowner.
Therefore, under a conventional development-rights JDA, there can be two taxable transactions.
Transaction | GST rate | Who pays GST? |
|---|---|---|
Landowner grants development rights | 18% | Developer, under RCM |
Developer provides development services | 18% | Developer, under forward charge |
Landowner sells developed plots | No GST | Not applicable |
Developer sells developed plots as owner | No GST | Not applicable |
4. Does this mean the developer pays GST twice?
There are two GST liabilities, but that does not necessarily mean the developer bears the full amount of both taxes in cash.
Let us take a simple illustration.
Assume that the taxable value of the development rights and the taxable value of development services are each independently determined at ₹50 lakh.
Illustrative GST calculation
GST on development rights (RCM) - ₹9 lakh
GST on development services - ₹9 lakh
Gross GST on both transactions - ₹18 lakh
These figures are only illustrative. The ₹1 crore stamp-duty valuation does not automatically mean that each service should be valued at ₹50 lakh. GST valuation must be determined separately.
5. How Input Tax Credit can reduce the cash payment
This is one of the most important aspects for developers.
When the developer pays ₹9 lakh GST under RCM, that amount may become available as Input Tax Credit (ITC), subject to the eligibility conditions.
The eligible credit can then be used to pay GST on the development services.
How GST credit works
Developer pays ₹9 lakh in cash
GST on development rights under RCM must first be paid in cash.
Eligible credit of ₹9 lakh becomes available
Subject to the ITC eligibility and reversal rules.
Developer has ₹9 lakh output GST liability
This arises on taxable development services.
Eligible ITC is used against output GST
If the full ₹9 lakh credit is admissible, no additional cash is needed for this output liability.
Total cash GST in this example ₹9,00,000
This result assumes full credit eligibility and no ITC reversal.
The GST Authority for Advance Ruling in Vaishnaoi Infratech and Developers Pvt. Ltd., Telangana AAR Order No. 21/2023, recognised the availability of TDR-related ITC against taxable development-service liability in the circumstances examined.
A caution: When a developer also sells plots, the credit position needs careful examination. GST law includes sale of land for the purpose of certain ITC apportionment and reversal calculations. Therefore, full ITC cannot be assumed in every project.
6. When does the developer need to pay GST?
The date of signing the JDA and the date on which GST becomes payable may be different.
For example:
Event | Expected date | GST implication |
|---|---|---|
JDA signed and development rights granted | 14 October 2026 | RCM liability must be evaluated |
RCM time of supply | Potentially December 2026 | Depends on payment and the relevant document date under Section 13(3) |
Land development works | October 2026–October 2027 | GST may arise on milestones, payments or invoice events |
Completion and distribution of plots | October 2027 | Developer's ownership transfer takes place as agreed |
Sale of developed plots | After completion | Genuine sale of land is outside GST |
A common misconception is that GST becomes payable only after the project is completed. That is not necessarily correct.
The agreement's payment milestones, development obligations and timing of consideration must be examined.
7. Is GST payable when the developed plots are sold?
Generally, no.
Under Entry 5 of Schedule III to the CGST Act, genuine sale of land is outside GST.
The same principle applies to genuine sales of developed plots by either the landowner or the developer after acquiring legal ownership.
CBIC Circular No. 177/09/2022-GST dated 3 August 2022 clarifies that sale of developed land remains outside GST, even where the land has been developed by providing basic infrastructure. However, services supplied for developing the land remain taxable.
8. Five things landowners and developers should check before signing a JDA
Ownership and development rights: Clearly specify whether ownership transfers immediately or only after development.
Plot-sharing arrangement: Define the ratio, allocation procedure, approved-layout requirements and conveyance arrangements.
GST valuation: Independently determine the value of development rights and development services.
GST payment timing: Specify milestones and understand when GST liabilities will arise.
Input Tax Credit: Examine whether credit will be available in full or whether reversal is required because of subsequent plot sales.
A properly drafted agreement, supported by correct accounting and tax treatment, can prevent disputes and unexpected cash-flow requirements.
Conclusion: Plan the tax before planning the plots
A Joint Development Agreement is not merely an arrangement for sharing land. It is also a commercial exchange of rights and services, each of which may have a different tax treatment.
For a developer, GST on development rights and GST on development services may both arise. However, appropriate use of eligible Input Tax Credit can reduce the additional cash payment.
At the same time, genuine sales of developed plots remain outside GST.
The key is to structure the agreement correctly, determine the taxable values carefully and plan GST payments before the project begins.
Disclaimer: This article is intended for general information. GST treatment depends on the actual agreement, ownership rights, nature of development, valuation, timing and ITC eligibility. The advance ruling discussed is fact-specific and is not automatically binding on all taxpayers. Obtain transaction-specific advice before entering into or implementing a JDA.Start writing here...