Computing GST Liability in Revenue-Sharing JDAs - Practical guide for developers and land owners.
Author: CA Vinay Thyagaraja, Senior Partner – Venu & Vinay Chartered Accountants.
Introduction:
In real estate, tax exposure is rarely determined by concrete, cement, or construction schedules. It is determined by the agreement’s structure. The Joint Development Agreement (JDA) determines who carries the tax burden. Just one mistake in the joint development agreement can shift GST liability from developer to land owner or vice-versa, or even worse, to both parties simultaneously.
Typically, JDAs function under two models: area-sharing and revenue-sharing.
REVENUE-SHARING:
What is Revenue-Sharing?
Under RERA, Revenue-Sharing is dividing the money earned from the project between the parties involved for a mutually agreed percentage. In other words, the land owner receives a share of the sales revenue from the project instead of receiving the constructed units.
What happens in a revenue-sharing JDA?
In a revenue-sharing JDA:
- The land owner transfers development rights to the developer.
- The developer constructs the entire project at his own cost.
- The developer sells the units.
- The agreed percentage of sales revenue is paid to the land owner.
In this structure:
- The developer gives units to buyers,
- The developer gives money to the landowner.
- The landowner does not receive units.
And GST treats units and money completely differently.
How is Revenue-Sharing treated under GST?
In revenue-sharing, the landowner receives money, which GST sees only as:
- A financial share of revenue.
- And, not a taxable supply
The land owner gives up his land development rights and receives money in return, something GST does not tax. Therefore, the land owner is not liable for GST on the revenue they receive.
GST on Transfer of Development Right (TDR)
When the landowner transfers his development rights, that transfer is taxable under GST. However, the GST law places the responsibility on the developer under the Reverse Charge Mechanism (RCM). Once this tax on development rights is paid by the developer, the land owner’s liability for GST ends. No tax invoices, no GST collection, and no filing of returns related to the construction activity.
GST on Sales Made to Home Buyers
Once the developer receives the development rights, he is entirely responsible for GST on all sales made to the home buyers before the Occupancy Certificate (OC). It is treated as a construction service and is liable under GST. Units sold after the OC are treated as sales of immovable property, which is outside GST. The landowner plays no role in any of this.
Revenue Sharing a Clean Compliance Loop
When implemented correctly, revenue sharing creates:
- One supplier: The developer is the only supplier under GST.
- One GST liability: Only construction services are taxable.
- One taxpayer: The developer alone.
This allows:
- Developers to fully control pricing, marketing, discounts, and allocation
- Land owners get zero GST compliance burden
When does Revenue Sharing Fail?
Revenue-sharing only works when the developer alone is the promoter in buyer-facing documents. GST taxes the promoter, not the investor.
Therefore, if the land owner appears as a promoter in RERA –
- Signs agreements in a manner suggesting they are selling
- Appears in marketing material or buyer documents as a seller
GST will classify them as a supplier of construction services, creating immediate GST liability.
To prevent this, the land owner must:
- Sign only to confirm the title, not as the seller
- Avoid appearing in any buyer-facing documents
- Avoid being listed as a co-promoter in RERA
The developer must:
- Be the sole promoter in RERA filings
- Operate collections through one developer-controlled bank account
- Handle all marketing and sales activities
If these elements are not followed, the structure collapses and GST liability falls on the land owner.
When does Revenue Sharing Become Truly Tax-Efficient?
Revenue sharing is not “naturally” tax-efficient. However, it becomes tax-efficient only when all documents consistently show:
- One promoter, who is the developer
- One seller, again the developer
- One bank account to be maintained and controlled by the developer
- One supply, the construction
- One taxpayer, the developer
All the documents must support this structure (agreement, RERA filings, brochures, website, project communication, and sale agreements).
Therefore, a revenue-sharing JDA can eliminate GST liability for landowners and be a simplified compliance for developers.
A disciplined approach to documentation, RERA filings, fund flow and buyer communication ensures that:
- The developer is the sole supplier,
- The developer bears all GST on construction, and
- The land owner remains completely outside GST.
When implemented correctly, revenue sharing is clean, efficient, and fully compliant.
When executed carelessly, it becomes area sharing, and the tax consequences follow.
AREA SHARING:
Area-sharing JDA is a different world altogether in tax reality compared to revenue-sharing.In area sharing, GST exposure increases significantly because of what the land owner receives.
So, what is the area sharing JDA under RERA?
In the area-sharing JDA, the land owner does not receive money. Instead:
- The developer constructs a portion of the project,
- And gives the constructed units to the land owner as consideration for the land.
This means the land owner receives units, not revenue.
What Happens in an Area-Sharing JDA?
In this model of JDA, the landowner receives constructed units from the developer as consideration for granting development rights. As mentioned above, GST is triggered at various levels of this construction agreement.
Area-sharing creates two suppliers, two sets of taxable services, and two GST exposures, namely:
- The Developer: Supplies construction services to both buyers and land owners.
- The Land Owner: Supplies construction services if they sell any unit before OC.
Why GST Treats Area Sharing as Taxable:
Area-sharing JDAs under GST are classified as taxable because the landowner receives a fully constructed unit from the developer in exchange for granting the development rights. Under GST, constructed units equate to construction services, which are taxable until the Occupancy Certificate (OC) is issued. Area sharing thus creates GST because units are received and sold. GST follows supply, not partnership.
GST on Units Sold Before and After OC in Area-Sharing:
- Units Sold Before Occupancy Certificate (OC)
All sales made before the issuance of the OC attract GST, since it’s classified as construction services under GST. And applies to both the landowner and developer. The GST is to be charged to the buyer and paid to the government, because until the OC is issued, the building is considered “under construction,” and construction is a taxable supply in GST.
- Units Sold After Occupancy Certificate (OC)
All sales made after the issuance of the OC are classified as immovable property. And move out of the scope of GST. The property is no longer considered a construction service. GST does not apply to transactions involving immovable property.
Although post OC sales are exempt, the developer and the landowner (in area-sharing) must handle GST consequences such as:
- ITC reversal for unsold units at OC for both landowners and developers in the area-sharing model of JDA.
- RCM liability on the notional value of unsold units at OC (for the developer in revenue sharing).
Area-Sharing and GST:
Unlike revenue-sharing, which channels only one supplier, area-sharing has two suppliers:
- Developer - the supplier of construction services
- Land owner - the supplier of units allocated to them
In this model of the JDA, the GST is split, leading to an increase in the compliance burden for the parties involved in the agreement.
Here, the landowner is also held responsible for:
- GST payments
- Multiple returns
- Maintaining input tax credit documentation
- Complying with post-OC ITC reversal
- Handling audits and notices
Contrasting the revenue sharing model, which keeps GST to one supplier. This makes the landowner an active supplier if they sell units before OC. This model creates dual GST exposure, resulting in higher compliance, higher tax risk, and greater operational complexity.
In simple terms, area sharing attracts GST because units are considered construction supplies, and construction is taxable until OC. Consequently, this model is GST-heavy and administratively demanding, making it usually less preferred unless both parties are fully prepared for the compliance involved.
Revenue-sharing avoids all of this because the land owner never becomes a seller of construction services. They are simply receiving a portion of the money. And distribution of money, when not tied to a supply, is not taxable.
The foundation of GST follows supply, not partnership.
Three principles that define gst treatment in both models of jda:
1. Units create GST liability, money does not.
- In Area Sharing, the landowner receives constructed units, which GST treats as construction services, making it taxable until the OC is issued.
- In Revenue Sharing, the landowner receives money, which GST treats as a financial share, and is not taxable.
This notion alone drives the entire GST outcome in JDA.
2. A landowner stays outside GST only when they stay outside the buyer chain.
- In Area Sharing, the landowner holds units as inventory and becomes a supplier if they sell any unit before OC, then the GST automatically gets triggered and is applied.
- In Revenue Sharing, the landowner does not sell units, does not appear as a promoter, and therefore has no GST responsibility.
GST sees the landowner as a taxpayer only when they enter the chain that supplies units to home buyers.
3. GST interprets documents and supply flow, and not intention or partnership.
- In Area-Sharing, if the documents show the landowner as a seller or promoter, GST will treat them as a supplier, regardless of what the parties have verbally agreed.
- In Revenue-Sharing, even if both parties intend for the landowner to remain outside GST, incorrect drafting or inaccurate RERA filings can inadvertently convert the arrangement into area-sharing.
GST is simply taxed based on the information provided in the documents.
Disclaimer:
The information contained in this article is provided for general informational purposes and does not constitute legal advice. Readers should not act or refrain from acting on the basis of any content included herein without seeking appropriate legal or professional advice on the specific facts and circumstances at issue.
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