GST and Income Tax on Transferable Development Rights (TDR): A Comprehensive Guide. Transferable Development Rights (TDR) is a revolutionary concept in urban planning and real estate, offering an innovative approach to manage land use, promote urban growth, and preserve valuable land resources. As urbanization accelerates, TDR plays a pivotal role in balancing development needs with ecological and cultural preservation.
What is Transferable Development Rights (TDR)?
TDR refers to a legal mechanism allowing landowners to transfer their development rights from one parcel of land, termed the “sending area,” to another, the “receiving area.” This allows:
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Landowners to be compensated for restricting development in sending zones.
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Developers in receiving zones to exceed standard Floor Space Index (FSI) limits for higher-density development.
This tool helps achieve sustainable urban growth while preserving ecologically sensitive or historically significant areas.
How Does TDR Work?
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Designation of Zones: Local governments identify sending zones (development-restricted areas) and receiving zones (development-encouraged areas).
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Issuance of TDR Certificates: Property owners in sending areas receive TDR certificates based on land size and zoning laws.
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Transfer and Utilization: These certificates can be sold to developers in receiving areas to enable construction beyond permissible FSI limits.
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Government Approval: Local authorities ensure TDR transactions align with urban planning objectives.
The TDR market operates on an open-market principle, with demand and supply determining prices.
GST Provisions and Rates for TDR
1. Applicable GST Rates
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For Residential Projects:
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GST is exempt if TDR is used for constructing residential apartments, subject to:
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Completion of construction within stipulated timelines.
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Proportional exemption for the residential component of a mixed-use project.
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Refer: Notification No. 4/2019 – Central Tax (Rate).
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For Non-Residential/Commercial Projects:
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GST at 18% applies on the consideration (monetary or non-monetary) under the Reverse Charge Mechanism (RCM).
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2. Examples of GST Calculation
Scenario 1: TDR Used for a Mixed-Use Project
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Project: 100 apartments (80% residential, 20% commercial).
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TDR Value: ₹5 Crores.
GST Liability:
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Residential component (80%): Exempt.
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Commercial component (20%): Taxable.
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GST Payable = 18% of 20% of ₹5 Crores = ₹1 Crore × 18% = ₹18 Lakhs.
Scenario 2: TDR Used for a Commercial Project
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TDR Value: ₹5 Crores.
GST Liability:
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GST Payable = 18% of ₹5 Crores = ₹0.9 Crores (₹90 Lakhs).
Income Tax Provisions and Rates for TDR
1. Tax Implications for the Transferor (Landowner)
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Capital Gains Tax:
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Self-Generated TDR Rights: Cost of acquisition = Nil (as per CIT v. D.P. Sandu Bros.).
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Purchased TDR Rights: Cost of acquisition = Purchase price.
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Tax Rates:
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Long-Term Capital Gains (LTCG): Taxed at 20% with indexation if held for >36 months.
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Short-Term Capital Gains (STCG): Taxed at applicable slab rates if held ≤36 months.
Example:
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TDR Transfer Value: ₹3 Crores.
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Holding Period: 4 years (LTCG).
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Indexed Cost: Nil (self-generated).
Tax Calculation:
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LTCG Tax = ₹3 Crores × 20% = ₹60 Lakhs.
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If ₹2 Crores invested in Section 54EC bonds:
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Taxable Amount = ₹1 Crore.
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Tax Liability = ₹1 Crore × 20% = ₹20 Lakhs.
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2. Tax Implications for the Developer (Recipient of TDR)
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Business Expenditure Deduction:
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Cost of TDR is treated as a deductible business expense under Profits & Gains of Business or Profession (PGBP).
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Example:
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TDR Value: ₹3 Crores.
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GST Paid (RCM): ₹3 Crores × 18% = ₹54 Lakhs.
The GST paid can be claimed as an input tax credit (ITC) if the TDR is used for taxable supply.
Conclusion
TDR is a crucial instrument in modern urban planning, balancing development with conservation. While it offers immense benefits, understanding its GST and Income Tax implications is vital for landowners and developers. Adhering to compliance ensures that stakeholders can maximize the potential of TDR without legal or financial hurdles. Always consult tax experts to navigate the complexities of TDR transactions effectively.
