GST Liability for Landowners Receiving Flats on a Sharing Basis from a Developer

In India, the Goods and Services Tax (GST) implications for landowners who receive flats on a sharing basis from a developer can be complex and depend on specific circumstances. Here's a detailed overview of the potential GST liabilities involved in such scenarios.

Nature of Transaction

When a landowner receives flats in exchange for allowing a developer to construct on their land, this transaction could be considered a supply of land or a service, depending on how the arrangement is structured. The classification of the transaction is crucial in determining the applicability of GST.

Share of Flats

If the landowner receives a share of the flats as part of a joint development agreement (JDA), it may not attract GST at the time of receiving the flats. The transaction might be treated as a transfer of development rights, which is typically not subject to GST. This means that, generally, landowners do not have to pay GST at the time of receiving the flats.

GST on Sale of Flats by the Developer

When the developer sells the flats to third parties, GST is applicable on the sale of those flats. The liability for paying GST generally falls on the developer, not the landowner. However, it's important to understand who exactly is bearing the GST during the sale process.

Landowner's Liability in Subsequent Actions

Once the landowner starts selling or renting out the flats they received as part of the sharing agreement, they might become liable to pay GST on those transactions. This liability can change based on the nature of their business and their total turnover from such activities.

It is advisable for landowners to consult with a tax professional or legal expert who specializes in GST to understand their specific liabilities and obligations in such scenarios.

Legal Context and Notifications

According to Notification No. 3/2019-CTR, which amended Notification 11/2017-CTR, if a landowner takes input tax credit of GST paid by the builder who discharged tax on the flats handed over to the landowner, the landowner is liable to pay GST when selling the flats before the output credit (OC) is received. This notification provides clear guidelines on the GST liability in such transactions.

In my opinion, the liability to pay GST on all the flats sold to buyers lies with the constructor. However, the constructor may pass on this tax to the buyers. As a recipient of flats in lieu of the ownership of land, you are also charged GST by the constructor/developer.

Key Points to Remember:
The nature of the transaction can impact whether GST is applicable. Flats received under a JDA may not attract GST at the time of receipt. The developer is generally liable for GST on the sale of flats. Landowners might be liable for GST when they sell or rent the flats.

Understanding these nuances is crucial for landowners to navigate the complexities of GST in construction and real estate transactions in India.