Transfer of development rights: the exemption and its conditions
An exemption that depends on how many flats you have sold by the day you finish building.
Transfer of development rights or floor space index for construction of a residential project is exempt to the extent of apartments booked before the date of issue of the completion certificate or first occupation, whichever is earlier. Tax on the portion attributable to unbooked apartments is payable by the developer under reverse charge, and the liability is capped by reference to the tax on the value of similar apartments. For commercial projects the exemption does not apply.
How the exemption works
The exemption is proportionate. It applies to the extent of apartments booked before completion, so the more of the project sold before completion, the smaller the reverse charge liability.
Booked, for this purpose, requires that an allotment letter or agreement has been issued and at least one instalment credited to the developer's bank account, in the manner the notification prescribes.
The tax on the unbooked portion is payable by the developer under reverse charge, at the time of the completion certificate or first occupation.
The notification also caps the liability by reference to the tax that would be payable on the value of similar apartments, which is the provision developers most often overlook when computing the exposure.
The disputes
The meaning of booked and the evidence required — allotment letter, agreement, and the credit of an instalment to the bank account.
The computation of the unbooked proportion, whether by carpet area or by value, and whether tower wise or project wise.
Mixed use projects, where the commercial portion attracts tax without the booking relief and the apportionment between residential and commercial is contested.
Long term leases of thirty years or more, which are covered by the same notification structure and raise the same questions.
The valuation of the development rights themselves where the agreement does not ascribe a value.
Managing it
Track bookings tower wise with the allotment letter date and the date of credit of the first instalment, because both are conditions.
Compute the projected unbooked liability at each quarter end and report it to the project cash flow, so completion does not arrive with an unfunded tax.
Apply the cap by reference to the tax on similar apartments; it frequently reduces the liability materially.
Where completion is imminent and bookings are low, the commercial decision to defer the completion certificate has a tax dimension that should be taken deliberately and lawfully.
What to do on Monday
Track bookings tower wise with both the allotment date and the instalment credit date.
Project the unbooked reverse charge liability quarterly into the project cash flow.
Apply the value cap in the notification; it is routinely missed.
State the value of development rights in the agreement.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
What counts as a booked apartment?
An apartment for which an allotment letter or agreement has been issued and at least one instalment has been credited to the developer's bank account, as the notification prescribes.
Is the liability computed by area or by value?
The notification prescribes the mechanism; the proportion is drawn from the carpet area of booked and unbooked apartments, with the value cap applied separately. Compute strictly under the notification.
Does the exemption apply to commercial projects?
No. The relief is confined to residential real estate projects.
Is a long term lease covered?
Long term leases of thirty years or more for residential projects are within the same notification structure. Read the entry.
What if the agreement does not value the development rights?
The value must be established, and the absence of a stated value is a valuation dispute waiting to happen. State it in the agreement.
In this cluster
- GST on real estate: the complete developer position
- Munjaal Manishbhai Bhatt: the one third land deduction is optional, not mandatory
- Joint development agreements: who pays, when, and on what value
- Works contracts under GST: classification, rate and the credit position
- Government contracts, escalation clauses and rate changes
- ITC restriction under Section 17(5)(c) and (d) for construction
- Preferential location charges, club charges and society transfer fees
- Affordable housing at one percent: the conditions that decide eligibility
- Redevelopment, slum rehabilitation and the value of free flats
- Leasing of land and buildings: the exemption boundary
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.