Landowners seek GST relief on joint development agreements

Time of India

22-04-2025

Several
landowners
have approached the courts seeking relief from the
Goods and Services Tax
(GST) authorities' decision to recover tax from landowners involved in
joint development agreements
(JDAs) in the
real estate sector
.
While these matters are pending in the courts of Mumbai, Telangana, and all three courts of the National Capital Region, a specific petition in the
Bombay High Court
was filed in the first week of April. In this case, a total of 10 landowners have filed the petition.
At the heart of the dispute lies the taxation of development rights transferred by landowners to developers in exchange for a portion of the constructed area or revenue sharing.
The GST authorities have sought to tax landowners in a barter transaction of supply of development rights who receive construction services under the forward charge for rendering services of transfer of development rights. This is instead of reverse charge mechanism, where the recipient of the service, rather than the provider, is liable to pay GST.
The matter is currently under legal scrutiny, and its outcome may affect future structuring of JDAs across the country. ET has seen the copy of GST notices issued to the landowners.
The applicability of 18% GST is expected to impact real estate projects across major property markets nationwide marking a pivotal shift in the cost dynamics of joint developments and redevelopment projects.
Landowners are contesting the tax demand, arguing that the transaction in question is not taxable at all, let alone under the reverse charge framework. They contend that transferring development rights in this manner does not qualify as a supply of service attracting GST and have accused the authorities of misinterpreting the tax provisions.
'This dispute essentially revolves around three core issues--taxability, the point of taxation, and the person liable to pay tax, particularly the applicability of the reverse charge mechanism,' said Abhishek A Rastogi, founder of Rastogi Chambers, who is representing the landowners in the matter before the Bombay High Court.
According to him, the legislative intent, as reflected through a series of earlier notifications issued with effect from April 1, 2019, need to be carefully considered while determining the tax implications in such cases.
"The nuances of when the tax liability arises, whether the transaction itself is taxable, and who should be responsible to discharge that liability are questions that go to the root of the matter,' he added.
The outcome of this legal challenge is expected to set an important precedent, clarifying the tax treatment of joint development agreements under GST.
Industry stakeholders including developers are closely watching the case, given its potential to reshape the structuring of real estate collaborations in the years ahead.
Industry associations and real estate developers have also expressed concern over the issue, cautioning that an adverse ruling could increase costs for landowners.
This may also disrupt the delicate financial structures of joint development and redevelopment projects, especially in land-scarce urban centres like Mumbai, Bengaluru, and Delhi-NCR. The applicability of 18% GST under the disputed framework threatens to significantly alter cost dynamics across major property markets.