The Government has notified the ‘time of supply’ in case of transfer of development rights in exchange of construction services. As per the Notification No. 4 / 2018 – Central Tax ‑(Rate) dated 25 January 2018, the date of transfer of possession or right in the constructed complex, by way of an instrument like a conveyance deed or allotment letter, shall be the time of supply of development right by the land owner to the developer. Such date of transfer of possession is also deemed to be the time when the construction services are supplied by the developer to the land owner.

Additionally, the Government has notified by way of Notification No. 1 / 2018 – Central Tax ‑(Rate) dated 25 January 2018   that the benefit of one third deduction (being the notional value of land) from the total value charged for supply of services for construction of flats, etc. shall be available in case of lease hold land. Furthermore, lease of land forming part of a composite supply of construction services would be exempt from GST.


Taxability of joint development agreement under area-sharing arrangement was contentious on various counts, i.e. whether transfer of development right is taxable, and if so, how to determine the time and value of supply. The Notification No. 4 / 2018 – Central Tax ‑(Rate) puts to rest such controversies by making it clear that the transfer of development rights is taxable, and the tax would be payable not on the date of execution of the joint development agreement, but on the date of transfer of possession evidenced by execution conveyance deed or allotment letter.

The erroneous perception amongst the industry that the supply of construction service on leasehold land was treated at par with supply of construction service on freehold land even though leasing, per se, was a taxable service. The Notification No. 1 / 2018 – Central Tax –(Rate) removes the anomaly in the valuation of leasehold land, and by exempting such lease from GST, brings the construction services on such leasehold land to be at par with services supplied in connection with freehold land thereby making the industry perception a reality. It is important to note that the one third deduction towards notional value of leasehold land is effective from 25 January 2018.