TMI BlogGST Applicability on Collaboration Agreement (JDA)X X X X Extracts X X X X X X X X Extracts X X X X ..... GST Applicability on Collaboration Agreement (JDA) - By: - deepak gulati - Goods and Services Tax - GST - Dated:- 11-10-2019 - - First of all we all should know about various transactions embedded under Collaboration Agreement:- Supply of Development Rights by Landowner Supply of Construction services by Builder against development rights Sale of flats by builder or landowner pre completion Sale of flats by builder or landowner post completion But there were frequent amendments in provisions governing taxability of works contract from day one of GST Regime. We would like to throw some light on these changing provisions and would like to summarize applicability of GST on certain transactions involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Collaboration Agreement . For the sake of convenience, we have bifurcated GST provisions in 3 phases as follows:- Phase I Provisions between 01.07.2017 to 24.01.2018 During the abovementioned period, time of supply is not specifically defined and hence governed by general provisions of Time of Supply which will be the completion of individual event encrypted in the said continuous contract of construction. SERVICE GST RATE TAXABLE VALUE Time of Supply CONSTUCTION SERVICE (composite supply) 12% on a single residential unit, otherwise rate is 18% . Cost of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of construction service + 10% of cost OR Fair Market Value. Should be treated as continuous service and accordingly completion of event as per agreement will determine time of supply DEVELOPER RIGHTS (under Forward Charge) 18% on transfer of Development Rights. Value of Construction service + upfront cash paid by builder It should be at the time of transfer of possession from landowner to builder for construction SALE OF FLAT Pre-completion(Land is a part) 12% on a single residential unit, otherwise rate is 18% . 2/3 rd of Sales Value of flat. Time of suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y should be the date of agreement for sale of flats Phase II Provisions between 25.01.2018 to 31.03.2019 ASCERTAINING GST RATE TAXABLE VALUE OF WORKS CONTRACT SERVICE GST RATE TAXABLE VALUE Time of Supply CONSTUCTION SERVICE (composite supply) 12% on a single residential unit, otherwise rate is 18% . Cost of provision of construction service + 10% of cost OR Fair Market Value. It will arise on completion of construction services by entering into conveyance deed or allotment letter DEVELOPER RIGHTS (under Forward charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 18% on transfer of Development Rights. Value of Construction service + upfront cash paid by builder It will arise on completion of construction services by entering into conveyance deed or allotment letter SALE OF FLAT Pre-completion (Land is a part) 12% on a single residential unit, otherwise rate is 18%. 2/3 rd of Sales Value of flat. This will be treated as continuous supply of service, hence time of supply will be governed by terms of contract Phase III Provisions Applicable after 01.04.2019 SERVICE GST RATE T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AXABLE VALUE TIME OF SUPPLY Taxability of Transfer of Development Rights by Landowner (covered under RCM and to be paid by Builder) In case where sale of flats is taxable Exempt N.A. N.A. In case where sale of flats is exempt Rate will be 18% subject to max 5% or 1% of value of flats sold Value of construction service + upfront cash paid by builder It will be the date of Completion Certificate or its first occupation whichever is earlier. Taxability of Construction Services (GST to be paid by Builder on fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward Charge Basis) Where supplied w.r.t residential complex, etc.- 18% Cost of construction of land owner s portion It will be the date of Completion Certificate or its first occupation whichever is earlier. Where supplied w.r.t single residential unit 12% Cost of construction of land owner s portion It will be the date of Completion Certificate or its first occupation whichever is earlier. Taxability of Sale of Flats Pre-completion (i)Affordable housing projects-1.5%, (ii)Residential project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s-7.5% (iii)others-18% Value of flat (-) 1/3 rd (deemed value of land) This will be treated as continuous supply of service, hence time of supply will be governed by terms of contract post-completion Exempt N.A. N.A. Additional Conditions for flats to be sold @ 1% / 5% GST GST Payable @ 1% / 5% should be paid in cash i.e. no ITC is allowed to the builder. In case any flat is sold post completion, builder has to compulsorily pay RCM on development charges. RCM @18% (except cement which is taxed @ 28%) to be paid in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchases from unregistered dealers is 20% of total purchases. Conclusion One can easily conclude that it s very difficult for Professionals, developers landowners to determine the exact tax liability in case of collaboration agreements due to number of amendments made in the said provisions. Therefore, agreements should be studied thoroughly so that one can conclude whether the agreement under question falls under Phase-I, Phase II or Phase III. --- By Deepak Gulati, Deepak Arya - Reply By Rakesh Garg as = Dear Deepak ji, I would like to discuss Para 2 of Phase III (On or after 01.04.2019) of your Article: Provisos IV to Conditions specified against Sl. No. (i) to (id) of entry no. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Notification No. 3/2019-CTR dated 29.03.2019 reads as, Provided also that where a registered person (land-owner- promoter) who transfers development right or FSI (including additional FSI) to a promoter (developer-promoter) against consideration, wholly or partly, in the form of construction of apartments, (i) the developer-promoter shall pay tax on supply of construction of apartments to the landowner-promoter , and .. Further, as per Para 2A of Notification No. 11/2017-CTR , inserted vide N. No. 3/2019-CTR dated 29.03.2019 , w here a person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, then, the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of construction service in respect of such apartments shall be Equal to the Total Amount charged for similar apartments in the project from the independent buyers, other than the landowner, nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land as prescribed in paragraph 2 above (i.e. one third of total vale). Further against the Sl. No. (i) to (id) of entry no. 3 , rate has been specified as 1.5% / 7.5%. Thus, in respect of RREP projects and other residential apartments, effective tax rate shall be 1% or 5%, as the case may be of the total value (after reducing one-third value of land). Thus, in my view, the rate of tax of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12%/18% on the cost of construction is applicable to works contractor and not to the promoter. Pl consider and discuss. Dated: 12-10-2019 Reply By deepak gulati as = Sir The promoter is providing construction services ( Work contract ) to Landowner, hence 12%/18% will be applicable. Dated: 14-10-2019 Reply By Rakesh Garg as = Deepak Ji Does it mean that - (1) valuation of the construction service shall be determined as per Para 2A, which shall be equal to similar apartment less value of land as per Para 2 (one third). We can't ignore Para 2A of the Notification. (2) After arriving at the value of construction service as per (1) above, tax shall be calculated @12% / 18%. Dated: 18-10-2019 Reply By Abhijeet Mane as = Dear De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epak sir, For Phase II : Provisions between 25.01.2018 to 31.03.2019 , request you to please clarify as to what will be the HSN classification to levy 18% of GST on transfer of rights from landowner to developer. Thanks in advance for your valuable inputs. Regards, Nouman Dated: 3-3-2020 Reply By deepak gulati as = Abhijeet Ji, To the best of our knowledge Development Right services will fall under REAL ESTATE SERVICES which is classsified under heading No. 9972. Dated: 5-3-2020 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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