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The Bombay High Court has provided significant relief to real estate developers by ruling that Goods and Services Tax (GST) on construction services under Joint Development Agreements (JDAs) is payable only upon transfer of ownership through conveyance, and not at the time of signing the agreement. The judgment came in a case involving Provident Housing, which had challenged a tax demand and sought a refund of INR 7 crore deposited under protest. Developers had argued that the earlier interpretation forced them to bear an 18% GST burden upfront, often without input tax credit, inflating project costs and ultimately impacting homebuyers. This clarity is expected to streamline redevelopment deals, ease financial strain, and improve affordability in land-scarce urban markets.
The Bombay High Court has ruled that developers do not need to pay Goods and Services Tax (GST) on construction services under joint development agreements (JDAs) until they actually become the owner of the property through conveyance. The judgment clarifies that GST liability arises only when the transfer of property rights is completed, rather than at the time of signing the agreement. Advertisement
This decision emerged from a case involving Provident Housing, which had challenged a tax demand and sought a refund of INR 7 crore that was deposited under protest. The developers argued that the earlier interpretation by tax authorities was unfair, as it required GST payment before ownership transfer, which created financial strain. The court agreed with the developers, providing significant relief for the sector.
JDAs are a widely used model, particularly in land-scarce urban areas. In such agreements, landowners provide land, and developers construct the property, sharing the revenue or finished units. Until now, GST rules were unclear, and developers were often required to pay 18% GST upfront on construction services. In some cases, input tax credit was unavailable, resulting in higher effective costs that were eventually passed on to homebuyers.
Experts believe this clarity could streamline redevelopment deals and impact affordability, as the costs previously included in property prices could be recalculated in light of the tax relief.
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