Development Agreements under GST and Tax Implications

INTRODUCTION

It is now commonplace to undertake real estate development by entering into development agreements. Such development agreements typically involve multiple stakeholders, two typical stakeholders being the landowner and the developer. A popular manner of entering into a development agreement is a scenario where the land-owner grants development rights to the Developer in return for monetary consideration. At times, the monetary consideration is fixed and lumpsum, whereas, at times, the monetary consideration can be variable based on the final selling price of the developed property by the Developer. At times, the consideration for the grant of development rights is non-monetary in nature, in the sense that the Developer allots certain developed property back to the Owner for either self-consumption or further sale. In many cases, the development agreement may provide for a combination of both monetary as well as non-monetary considerations. In such a scenario, the development agreement is generally understood to be a barter agreement whereby:

a. The developer pays a monetary consideration for a grant of development potential to the owner.

b. The developer further allots some flats / units in the new building to the owner. The owner may further sell the units allotted either during construction or post-constr