GST Implications on Joint Development Agreements
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The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model.
The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model.
Taking the stock of land prices across the country as on date and projected, it is impossible for the developer to buy the land and deliver a project. Consequently, the land owners would be sitting on their parcels of lands without any potential buyer. Hence, the only way this sector moves ahead is, at least in areas where the land rates are high, is by the joint development arrangement.
Commercially, the joint development arrangements have matured enough by this date. The chink in the armor of joint development arrangement is the taxation. Both direct and indirect taxation create a huge uncertainty in various aspects. If the said arrangements have to be saved thereby saving the growth of industry, there are certain things, the government or tax administration authority should do.
First, the implementation of the ambiguous laws by tax authorities in the interest of collection of tax has to be rationalised. Second, the awareness of the laws surrounding the joint development arrangements has to be created by the tax authorities which will make the landowners and developer remain better compliant. Third, a detailed guide with various examples covering possible commercial scenarios has to be provided by the government or tax administration authority and landowners and developers who place reliance on the said guidance ought to be provided immunity. Lastly, given the nascent stage of GST laws, a special scheme wherein only taxpayers are asked to pay the tax amount (and providing immunity from interest and penalty), should also be brought to reduce the current and prospective litigation. These measures have to be adopted to the extent required under both direct and indirect taxation.
On the taxpayer’s front, a lot of brainstorming is to be done by taking help of the professionals and other sources. This brainstorming is to be done at the inception of the project, not midway or at the end. The later in the project, the tougher it would be put back certain things, thereby leading to increase of costs and disadvantageous position. Hence, it is advisable to have a thorough understanding of the taxability that effects the landowner and developers individually and holistically, right at the inception of the project. It is advisable that along with the landowner and developer, the consultants of both the parties should also meet, discuss and arrive at the consensus. The same needs to be documented and has to be visited all along the project to act as per the tax positions agreed. When taking the tax positions, it is advisable to understand the implications under direct and indirect taxation instead of seeing the arrangement only under light of one particular taxation. This provides a complete understanding and insulates from unnecessary litigations and costs.
With the above in place, we welcome you to this edition!
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| Description | The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model. Taking the stock of land prices across the country as on date and projected, it is impossible for the developer to buy the land and deliver a project. Consequently, the land owners would be sitting on their parcels of lands without any potential buyer. Hence, the only way this sector moves ahead is, at least in areas where the land rates are high, is by the joint development arrangement. Commercially, the joint development arrangements have matured enough by this date. The chink in the armor of joint development arrangement is the taxation. Both direct and indirect taxation create a huge uncertainty in various aspects. If the said arrangements have to be saved thereby saving the growth of industry, there are certain things, the government or tax administration authority should do. First, the implementation of the ambiguous laws by tax authorities in the interest of collection of tax has to be rationalised. Second, the awareness of the laws surrounding the joint development arrangements has to be created by the tax authorities which will make the landowners and developer remain better compliant. Third, a detailed guide with various examples covering possible commercial scenarios has to be provided by the government or tax administration authority and landowners and developers who place reliance on the said guidance ought to be provided immunity. Lastly, given the nascent stage of GST laws, a special scheme wherein only taxpayers are asked to pay the tax amount (and providing immunity from interest and penalty), should also be brought to reduce the current and prospective litigation. These measures have to be adopted to the extent required under both direct and indirect taxation. On the taxpayer’s front, a lot of brainstorming is to be done by taking help of the professionals and other sources. This brainstorming is to be done at the inception of the project, not midway or at the end. The later in the project, the tougher it would be put back certain things, thereby leading to increase of costs and disadvantageous position. Hence, it is advisable to have a thorough understanding of the taxability that effects the landowner and developers individually and holistically, right at the inception of the project. It is advisable that along with the landowner and developer, the consultants of both the parties should also meet, discuss and arrive at the consensus. The same needs to be documented and has to be visited all along the project to act as per the tax positions agreed. When taking the tax positions, it is advisable to understand the implications under direct and indirect taxation instead of seeing the arrangement only under light of one particular taxation. This provides a complete understanding and insulates from unnecessary litigations and costs. With the above in place, we welcome you to this edition! | In this 98h edition, we bring you articles covering the recent supreme court judgment under the service tax law, wherein it was held that only provisions of updates to already sold subjected to VAT software is not again subjected to service tax. The next article is part of the series of various facets of taxability of management support services. In this part, we have analysed the impact of arm’s length principle qua the management support services vis-à-vis low value adding intra group services. The next article is on the recent release of change in ODI Regulations. The readers may recall that draft ODI regulations for public comments have released a year ago. Now, the final version of regulations has been released. We tried to compare the old vs. draft vs. new regulations and its implications. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same. Key Topics: GST DIRECT TAX FEMA | In this edition, we bring you, the second part of the article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act.
The next article is on the changes to the existing faceless assessment scheme thereby clearing ambiguities and providing more clarity.
We hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.
Key Topics
GST
DIRECT TAXES
| In this edition, we bring you, an article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act. Though we understand that we have only touched the tip of iceberg, we have made an honest attempt in understanding the direction in which it would be interpreted. The article comes in two-part series, the one dealing with the position under the European VAT and the next dealing with position under Indian scenario. The next article is on the interpretation of ‘Most Favoured Nation’ clause in the tax treaties. The Courts have shown a direction as to how the same has to be interpreted specifically in the context of interpretation of treaties in light of Vienna Convention of Law of Treaties. However, the Board’s Circular has attempted to override the judgments and gave a new interpretation to their favour. Though the said circular is binding only on the revenue and not on the courts or assessee, it would be an unwanted fight of the taxpayer with the revenue. We have covered the exact issue with our remarks. The next article is on the recent judgment of Honourable Supreme Court in the issue pertaining to the succession by a female child prior to the Hindu Succession Act. The Court answered the question in the favour of female child stating that, as long as the property of the father is self-acquired, the devolution happens by way of succession and not on survivorship. The finale is on the recent updates in the areas of labour laws. The insights were contributed by our learned senior associate Mr SV Ramachandra Rao. I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same. Key Topics GST OTHERS INTERNATIONAL TAXATION | We bring you our detailed analysis of the recent budget proposals. Like every Indian, I have expected many changes in this budget, especially, being a preelection year budget. But this budget appeared to me, as if, something more can be done, but has not. The macro-economic indicators project that the country is going to post good growth in the coming years. Before leaving you to the detailed analysis, I would like to touch certain proposals which attracted my interest. The first is the introduction of new appellate authority under the provisions of Income Tax Act to clear the pending cases before the existing appellate authorities. This would improve the speed of the disposal of cases and definitely a welcome move. The next one is the changes brought to the new tax regime. Allowance of standard deduction and reduction of surcharge makes it bit attractive. It appears to me that the over a period of time, the old regime would be discontinued. The increase of exemption for leave encashment is also a positive move. On the flip side, expanding the scope of Section 56(2)(viib) to non-residents would effect to certain extent the investment coming from outside India. The possible tax abuse should have been taken care through GAAR and other mechanisms instead of extending the applicability to non-residents. The capping of Rs 10 Crore for Section 54 and Section 54F causes bit inconvenience. Considering the increase of the prices in real estate, this should have not bought in. With this brief, I present you the detailed analysis on significant clauses on Finance Bill 2023. We wish this effort of ours is fruitful and we would love to receive feedback on this. | In this edition, we bring you an article on e-invoicing, which is made mandatory for business with turnover more than 100 Crores with effective from Jan 2021. The said article covers all the finer aspects pertaining to e-invoicing. The next article deals with the recent announcement by CBIC in relation to GST filings. The QRMP scheme would relieve the small taxpayers from monthly filing of returns since the returns are now being shifted to quarterly basis. The article covers the background, the modus operandi and other compliances in relation to QRMP scheme.
The next article is on the prevention of abusive strategy of thin capitalisation. In order to prevent such abusive strategy, Section 94B has been introduced in the Income Tax Act. However, there is a deficiency of language in the said section, which will create huge litigation issues. Taking such potential litigation issues, we have contemplated to cover such issues in multiple parts. This edition has the first part in the series.
I hope that you will have good time reading this edition and please do share your feedback. I will also urge clients to mail us topics or issues on which you want us to deliberate in our future editions, so that we can contribute to the same.
Key Topics:
GST
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| Content | The joint development arrangements play an important role in the real estate industry. But for this model, the burgeoning growth of the sector could not have happened. This model also makes the dream come true of every person to have his own home. The land owner who may not possess the construction expertise and the developer who may not have huge funds to purchase the land for demonstrating his construction expertise meet together to achieve and realise a project. The developer would be in a position to use his funds that are otherwise required for purchase of land for more productive tools and infra. The land owner instead of simply transferring the land, can convert the land into cash-generating asset by tying up with the developer. Hence, this is a definitely win-win model. | In this 98h edition, we bring you articles covering the recent supreme court judgment under the service tax law, wherein it was held that only provisions of updates to already sold subjected to VAT software is not again subjected to service tax. | In this edition, we bring you, the second part of the article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act. | In this edition, we bring you, an article on the understanding of the depth of the most litigative entry in the indirect taxation sphere, which is agreeing to the obligation to refrain from an act or tolerate an act or to do an act. Though we understand that we have only touched the tip of iceberg, we have made an honest attempt in understanding the direction in which it would be interpreted. | We bring you our detailed analysis of the recent budget proposals. Like every Indian, I have expected many changes in this budget, especially, being a preelection year budget. But this budget appeared to me, as if, something more can be done, but has not. The macro-economic indicators project that the country is going to post good growth in the coming years. | In this edition, we bring you an article on e-invoicing, which is made mandatory for business with turnover more than 100 Crores with effective from Jan 2021. The said article covers all the finer aspects pertaining to e-invoicing. The next article deals with the recent announcement by CBIC in relation to GST filings. The QRMP scheme would relieve the small taxpayers from monthly filing of returns since the returns are now being shifted to quarterly basis. The article covers the background, the modus operandi and other compliances in relation to QRMP scheme. | ||
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