Supreme Court and AAR rulings in 2025 that affect GST applicability on under-construction properties and joint development agreements.
Supreme Court Ruling on Under-Construction Properties
The Supreme Court, in its landmark judgment in Union of India vs. Real Estate Developers Association (2025), settled a long-standing dispute regarding the GST treatment of affordable housing projects where occupancy certificates were issued after a delay caused by force majeure events during construction. The court held that the completion certificate date, and not the date of first booking or allotment, should determine whether a project qualifies for the exempted "completed property" status under the GST law.
This ruling has significant retrospective implications for developers who had collected GST on units in projects that received completion certificates post-Covid but were substantially complete before that date. The court clarified that developers who have already remitted GST cannot claim refunds without proportionate reversal of the input tax credit claimed, making the net impact project-specific and requiring case-by-case analysis.
GST on Joint Development Agreements — AAR Clarity
Multiple Authority for Advance Rulings (AAR) decisions in 2025 have clarified the GST implications of Joint Development Agreements (JDAs) between landowners and developers. The Andhra Pradesh AAR held that the landowner's transfer of development rights to the developer is a taxable supply liable to GST at 18% under RCM (Reverse Charge Mechanism), and that the liability crystallises at the time of completion of construction and not at the time of JDA execution. This brings welcome clarity to a long-debated question.
However, the Karnataka AAR took a different view in a contemporaneous ruling, holding that the transfer of development rights is outside the scope of GST where the landowner retains an undivided share of the land throughout the project. This AAR divergence means that the GST treatment of JDAs remains jurisdiction-sensitive, and developers and landowners must obtain state-specific advance rulings before finalising transaction structures. The matter is likely to reach the Supreme Court for a definitive ruling in 2026.
ITC Eligibility for Real Estate Developers
The GST Council's clarification circular issued in December 2025 addressed the vexed question of ITC eligibility for input services used in both residential and commercial projects. Developers who construct mixed-use complexes must now apply a standard apportionment formula based on the carpet area of residential versus commercial units, rather than the cost-based allocation previously used by many developers. This change affects ITC quantum calculations for projects that were ongoing when the circular was issued.
Real estate developers should urgently review their ITC reconciliation workings for FY 2024-25 and FY 2025-26 to assess whether the revised apportionment methodology results in additional ITC reversal obligations. Where excess ITC has been availed, proactive reversal with applicable interest will be less costly than a departmental audit that triggers penalty provisions. Engaging a GST specialist for a project-wise ITC health check before the annual GSTR-9 filing is strongly recommended.
