GST on Joint Property Development: Patna HC Issues Key Ruling
The Patna High Court on May 5, 2025 ruled that Goods and Service Tax (GST) is payable on transfer of development rights received by a builder from a landlord prior to issuance of completion certificate (CC) and as per a joint development agreement (JDA) with the landowner. In simple terms this means a builder has to pay GST on the house apartment units on reverse charge mechanism (RCM) basis given by it to the landowner under the terms of JDA.
To give you a clear idea, in a JDA the landowner usually does a barter trade with the builder by telling him to build house apartments on the land in exchange for some money and house units in return. The builders in such JDAs usually keep a substantial portion of the house units which he himself sells to homebuyers. The landowner has a choice to either sell off his share of the house units or use it for his family. This judgement impacts the landlord’s share of the jointly developed house property.
For instance, a builder may agree to build a 4-story building on a vacant land bearing the entire cost and offer two floors of newly constructed building to the landowner.
In the case referred to Patna High Court the builder and landowner signed a JDA where the builder got 57% of the house units and the landowner 43%. But the tax dispute started with the 43% part which the landowner received from the builder. The builder said that he should not pay GST on the 43% part on reverse charge mechanism (RCM) basis since no money was exchanged. The builder said that this JDA between them was a simple non-monetary consideration towards allotment of houses.
The government contended that this transaction would attract GST and that too under RCM basis and the builder has to pay this. With this dispute the builder and government reached the doors of Patna High Court.
