Transfer of Development Rights (TDR) and Floor Space Index (FSI) are critical instruments in real estate development, particularly in redevelopment projects and areas with density restrictions. The GST treatment of TDR and FSI has been a subject of significant debate and litigation.
This article explains the GST implications of TDR and FSI transactions.
What is TDR and FSI?
- TDR: A development right transferred from one plot to another, allowing the owner of the receiving plot to construct additional floor space beyond the permissible limits.
- FSI: The ratio of the total floor area of a building to the area of the plot on which it is built.
In Maharashtra and other states, TDR is a marketable instrument that can be purchased and used for additional construction.
GST Applicability on TDR and FSI
Under Notification No. 4/2019-Central Tax (Rate), Entry 5B , GST is exempt on the supply of TDR or FSI for construction of residential apartments, provided certain conditions are met.
However, the application of this exemption has been subject to conflicting judicial interpretations.
Recent Judicial Developments
The Bombay High Court in 2025 quashed a GST demand on a developer, holding that the transfer of development rights did not qualify as a taxable supply of TDR or FSI under the notification. The court held that for Entry 5B to apply, there must be a TDR transaction as per the applicable development control regulations.
The Patna High Court ruled that GST is applicable on RCM basis on the transfer of development rights from a landowner to a builder before the completion certificate is issued under a JDA.
RCM Liability on TDR
When TDR is transferred by a landowner to a developer, the developer may be liable to pay GST under RCM if the landowner is an unregistered person. The developer must pay GST at 18% on the value of the TDR.
ITC on TDR
ITC on GST paid for TDR under RCM is available to the developer if the TDR is used for construction of taxable residential or commercial properties. However, ITC is blocked if the construction is for exempt supplies.
Compliance for Developers
- Determine whether the TDR transaction qualifies for exemption under Notification 4/2019.
- Pay GST under RCM if applicable.
- Claim ITC on eligible TDR costs.
- Maintain proper documentation for all TDR transactions.
- Monitor judicial developments on TDR taxability.
Conclusion
The GST treatment of TDR and FSI remains a contentious area with conflicting judicial interpretations. Developers must carefully structure their transactions and seek professional advice to ensure compliance.
At Anuj Desai & Associates, we provide expert advisory services on GST for TDR and FSI transactions, including RCM compliance and ITC claims. Our team can help you navigate the complexities of GST on development rights.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.