5% GST Applicable on Construction of Landowner’s Share of Residential Flats: AAR

The Applicant, SI Property Kerala Private Limited, constructs apartments and villas on self-owned land and through joint ventures with third-party landowners. The applicant signed a Joint Development Agreement (JDA) with a landowner, Shri S. Madhava Menon. As per the agreement, the applicant will construct 39 residential apartments, out of which 11 apartments will make up the landlord’s share. Once the project is completed, these apartments will be given to the landowner.

Questions Asked by Applicant

The applicant filed an application to get an advance ruling on the following questions:

“1. Whether GST is applicable to the Landowner’s share of constructed residential flats?

2. If GST applicable on point 1 above, what will be the rate of GST and the value on which such GST is applicable?”

AAR Ruling

As per the Kerala Authority for Advance Ruling (AAR), GST is applicable on the landowner’s share of constructed residential flats. These facts are received as consideration for transferring development rights (TDR) to the promoter, which is treated as a taxable supply under the GST. Therefore, the promoter must discharge GST on the construction service provided to the landowner. Additionally, if the TDR is received after April 1, 2019, the promoter must also pay GST under the Reverse Charge Mechanism (RCM) on the unbooked residential apartments at the time of completion or first occupation, whichever is first.

The GST is applicable as below:

For Construction Services: The applicable GST rate is 5% (2.5% CGST + 2.5% SGST) without ITC on constructional services for residential apartments (other than the affordable units), as per Notification No. 03/2019 dated 29.03.2019. The value of construction services must be considered to be the value of similar apartments sold to independent buyers around the date of transfer of development rights.

For Development Rights under RCM: GST at 18% applies on the transfer of development rights, and it must be paid by the promoter under reverse charge. However, TDR used for residential construction is exempt, other than the unbooked units as of the date of the completion certificate of the first occupation.