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A piece of land, carry various rights with it. An owner of a land has right to possess, right to easement, right to sale, right to rent, right to develop, right to sub-let, right to occupy, etc.

Right to develop a land if called "Developmental Rights", in which the owner of a land authorizes a person to develop a structure on the land. Developmental Right is simply a document granting permission to a person to develop a structure on land. A "Developmental Right" can be easily sold, transferred, or exchanged.

Now let's consider an example, Mr. A is the owner of a piece of land and Mr. B is a developer. Mr. B approaches Mr. A with a Joint Development Project details and Mr. A has provided his consent to develop on land a Joint -Development Project. After completion of the project Mr. B has sold some flats or shops to outsiders and Mr. A becomes a consenting party in this case. Mr. A will transfer the undivided share in land in favor of outsiders' co-operative housing society. In this case, Mr. A's permission will be granted in the form of "Transfer of Development Rights".

Regulation 34 of Development Control Regulations of Greater Bombay, 1991 states that under certain circumstances, the development potential of plot /land may be separated from the land itself and can be made available to the owner of the land in the form of "Transferrable Developmental Rights".

Let's consider another example, Mr. X has a plot of land and some slum dwellers have encroached his land. Now the government through its scheme of slum development approached Mr. P for the development of his plot for slum dwellers. Mr. P in exchange gets "Transferrable Development Rights" from the government. Mr. P can use this "Transferrable Development Rights" on any land subject to fulfillment of some terms and conditions.

1. Taxability of Joint Development Agreement under Goods and Service Tax:



Section 7 of the Central Goods and Service Tax Act, 2017 levy tax on "Supply" of Goods or Services or both.

"Sec-7, notwithstanding anything contained in subsection (1), -(a) activities or transactions specified in Schedule III; -----shall be treated neither as the supply of goods nor a supply of services."

Schedule III, covers the sale of land, now whether Transfer of Development Rights in land is taxable, lets us see some court decisions;

Sale of Land and land are not defined under the CGST Act, 2017.

CIT Vs Motors and General Stores (P.) Ltd (1967) 66 ITR692 and in case of 20th Century Finance Corporation Ltd. Vs. State of Maharashtra (2000)6 SC 12; held that the word "Sale" denotes transfer of title, which is irrevocable and permanent. Hence "Sale of Land", denotes "Transfer of Title in land".

Let's, see definition of land in other laws;

Section 3(a) of the Land Acquisition Act, 1894: defines "Land" as it includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the Earth.

Section 3(a) of the Bombay Land Revenue Code: - "Land" includes benefits to arise out of the land and things attached to the Earth or permanently fastened to anything attached to the Earth and also shares in or charges on the revenue or rent of villages or other defined portions of territory.

Safiya Bee Vs. Mohd. Vajahath Hussain (2011)2SCC94, Apex Court: and in various other cases it was held that "land" includes benefits that arise out of the land.

Now it is clear that "Land", includes benefits that arise out of the land.

Nagen Hazarika Vs. Manorama Sharma AIR 2007 Gau 62; Guwahati High Court held that the expression "Title" is a broad expression in law, which cannot always be understood as akin to ownership. It conveys different forms of a right to a property, which can include the right to possess such property.

It means that the "land" not only includes the full title in the land but also rights, which gives benefits associated with it.

Girnar Traders Vs. State of Maharashtra (2011)3SCC: held that Land Development Right is a right to carry out development or to develop the land or building or both. Thus, it is a benefit arising out of the land and hence included in the definition of Land.


In Joint Development Agreements, the land owners have not only given land development rights but also the right to sell the units constructed on their land. The possession of land has been parted out by the landowner to the developer, through Power of Attorney, executed in favor of the developer.

Now in this case "Right to develop" a land is a benefit arising out of the land and hence same is squarely covered within the definition of "Land". Since the same right is given irrevocable and permanently, it is covered within the definition of "Sale of land. The same is covered in Entry 5 of Schedule III to Central Goods and Service Tax Act, 2017 and hence the same neither be considered as sale of goods or supply of services.

Thus, the sale of development rights is not taxable under GST.

Same as above Transfer of Development Rights, shall also not be considered as "Goods", because, it involves the transfer of an interest in immovable property.

Section 2(52) of CGST Act, 2017 -includes the transfer of an interest in movable properties.


Section 2(102) of the CGST Act, 2017, Services includes anything other than goods. However, an activity, being other than goods, cannot be considered as service, if such activity dose not possess any element of service as understood in commercial parlance. Thus, the transfer of development rights cannot be considered as Service.

From the above definitions and judgments of the apex courts, we can presume that "Sale of land", connotes' transfer (irrevocable and permanently) of title in land including rights in the form of benefits arising from it. The same is covered under entry number 5 of Schedule III to CGST Act, 2017 and hence same shall neither be regarded as a supply of goods or supply of services or both, and hence GST cannot be levied on Development Rights.

The Government on 25/01/2017 through Notification No. 4/2018-CGST(Rate) provides clarification that Development Rights are indirectly held to be taxable and opened a window for litigation.

If one has decided to pay tax on Development Rights, will he be able to claim ITC?

The answer of the above question is: yes, an assessee paying GST on Development Rights can claim a credit under the CGST Act, 2017.

But Section 17(5)(d) of CGST Act, 2017 provides that "goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Through this entry, the government can restrict input tax credit on Development Rights. Since it blocks goods or services or both received by a person in the construction of the immovable property. However, Development Rights are procured in relation to construction. Therefore, one can claim the credit of taxes paid on the transfer of development rights.

NOTE: From above it is clear that Transfer of Developments Rights is not taxable under Goods and Services Tax Act,2017

2. Taxability of JDA under provisions of Income Tax Act, 1961- Deferment of Tax

Section 45(5A) of the Income Tax Act, 1961: has been inserted with effect from Assessment year 2018-19 for computation of Capital Gains in case of Joint Development Agreements. The main conditions to be complied with are;

  1. The assessee (i.e. land/building owner) should be an Individual or HUF;
  1. The assessee has been entered into a Specified Agreement (Joint Development Agreement) with a builder/developer for the development of a project on land provided by him. A Joint Development Agreement, in which the land/building owner agrees or allow another person to develop a real estate project. The land/building owner in a JDA transfers its development rights in the land/building to the developer or builder, in consideration of a share, being land/building or both in such project.
  1. These provisions are applicable only to Individual and HUF;

Since provisions of Section 45 of the Income Tax Act, 1961 is the charging section for calculation of Capital Gain Tax and the situation of transfer of capital assets, will trigger the liability of capital gain tax liability.

In the case of the Joint Development Agreement, the owner of a land/building transfers his development rights to a builder or developer for development of a project on the land and building. In this agreement, Development Rights in land/building transfers to the builder /developer, and this act raises capital gain tax liability.

The definition of transfer includes any arrangement or transaction where any rights are handed over in the execution of part performance of the contract, even though the legal title has not been transferred. Now in this scenario, execution of JDA between the owner of land/building and the developer/builder in the hands of the owner in the year in which the possession of immovable property or land/building is handed over to the developer/builder.

Since provisions of Section 45 provides that the capital gain will be taxable in the year in which the capital asset under consideration transferred. This will create a hardship on the land/building owner to pay a huge amount of tax in the assessment year in which the property has transferred.

The Central Government to remove hardship in case of Individual and HUF land/building owners inserted Section 45(5A) from the assessment year 2018-19, through with the time of payment of Capital Gain Tax will be Deferred to the assessment year in which project on land/building transfers received Completion Certificate from Competent Authority.

Computation of Capital Gain

It is further provided that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.


Now the Capital gain shall be taxable in the hands of the owner of land/building as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the Competent Authority;

If an assessee tries to sell any unit in a project developed on his land/building, then provisions of Section 45 are applicable, instead of provisions of Section 45(5A) and the Capital Gain Tax will be payable in the same year in which the transfer took place.


Mr. A is the owner of land in Mumbai, the cost of land as on 01.04.2016 was Rs. 60.00 Lakhs. He enters with ABC Developers for the development of land and a JDA has been entered on 15.10.2016. The ABC Developers has developed a building on land comprising 10 flats. The Competent Authority has given Completion Certificate on 20.04.2020 and Stamp Duty Value as on 20.04.2020 for each flat was Rs. 40.00 Lakhs. M/s. ABC Developers according to the provisions of the Joint Development Agreement handed over 4 flats and Rs.80.00 Lakhs cash as consideration to Mr. A.

Let's Calculate Capital Gain Tax in this case;

The Land Owner, Mr. A; The Value of land as on 01.04.2010 – Rs. 10.00 Lakhs

The developer, M/s. ABC Developers has given to Mr. A = Cash of Rs. 80.00 Lakhs

The Date of JDA: 15.10.2016

The Date of receipt of Completion certificate: 20.04.2020

The developer M/s. ABC developers has transferred 4 flats to Mr. A.

The Stamp Duty Value as on 20.04.2020 for each flat was: Rs. 40.00 Lakhs

Total Cost of flats transferred to Mr. A = Rs. 40.00 Lakhs * 4= 1.60 Crores

FULL VALUE OF CONSIDERATION (Cost of 4 flats transferred + Cash consideration given by developer)

Less: Cost of acquisition [higher of actual cost or fair market value as on 01.04.2010] [Rs.10,00,000*289(CIP for 2020-21)/167(CIP for 2010-11)]



Long Term Capital Gain



  1. if Mr. A owns not more than one residential house property, he can claim an exemption under provisions of Section 54F.
  2. If Mr. A transfers his share in the project before issue of Completion Certificate i.e. before 01.04.2020, then transfer of 4 flats and cash consideration paid by M/s. ABC Developers to Mr. A will be taxable in the year in which transfer took place and provisions of Section 45(5A), will not be applicable.


From above discussion it is clear that sale/transfer of land/development rights is not considered as "Supply" under provisions of Goods and Services Tax Act, 2017 and hence not taxable. But in the Income Tax Act, it will be considered as a transfer of Capital Asset and hence taxable as Capital Gain Tax u/s. 45. The Central Government has deferred the time of taxation by inserting provisions of Section45(5A) from AY 2018-19, which provides that the Capital Gain will be taxable in the year in which the Completion Certificate for part or the whole project will be issued by the Competent Authority.

Disclaimer: This is not a comprehensive list of amendments of Insurance Laws . The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.


Published by

FCS Deepak Pratap Singh
(Manager Compliance -SBI General Insurance Co. Ltd.)
Category GST   Report

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