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GST applicability in a joint development agreement

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Asishkumar

Financial reporting manager

21 Points Posted on 30 December 2022

Dear members,

We have entered into a joint development agreement wherein we are the land owners and the contractor / builder would construct 4 floors (ground plus 3) of which we get one floor plus some additional cash. We have an option of buying another floor by a) foregoing the additional cash that we were to receive plus b) investing a bit more on the additional floor.

The queries are

a) Will GST be applicable to the land owners at any stage and at what percentage? if yes, when is it liable to be paid to the government.

b) Will Income tax be applicable for the land owners where in they get a new property and / or additional cash. Given that the partial / entire consideration will be reinvested in property, can sectioin 54F exemption be claimed as the consideration is invested in residential property?

Looking forward to the responses. Happy new year to all of you too!

Warm regards,
Asish

Replies (1)

Aisha

Finance Professional

13417 Points Posted on 30 December 2022

(a) If the contractor / builder is constructing the 4 floors on behalf of the land owners, and the land owners are merely providing the land for the construction, it is likely that the land owners will not be required to pay GST on the transaction.
However, if the land owners are actively participating in the construction of the 4 floors, for example by providing materials or labor, they may be required to pay GST on the value of the supply of goods or services that they provide. In this case, the GST will be payable at the time the supply is made.

(b)If the land owners receive a new property and/or additional cash as consideration for the joint development agreement, they may be required to pay income tax on the value of the property and/or cash.
If the land owners invest the partial or entire consideration in a residential property, they may be able to claim the benefit of section 54F of the Income Tax Act, which provides for an exemption from capital gains tax on the sale of a residential property if the sale proceeds are invested in a new residential property within a specified time frame.