GST on Construction for Related Landowners in Land Pooling Projects
Telangana AAR ruled that pooling land without title transfer avoids GST, but construction for landowning directors is taxed at 110% of cost.
- Ruling
- TSAAR Order No. 11/2018 dated 26-07-2018
- Dated
- 26 Jul 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Land pooling without ownership transfer is not taxable under GST.
- Constructing building space for landowning directors is a taxable service.
- Because directors are related persons tax applies on 110% of construction cost.
- Handing over finished units is not a separate second taxable supply.
In short
A real estate company and its directors pooled adjacent land plots under an agreement to build a single commercial project without transferring land titles. The company asked GST authorities whether joining land parcels attracts GST, whether constructing the directors' share of the building counts as a service, and how that construction work should be valued for tax purposes under Goods and Services Tax (GST).
What has changed
How it worked before
Businesses assumed that internal land pooling agreements between a company and its directors were non-taxable cost-sharing arrangements. Developers also assumed that recovering actual construction costs from landowning directors would serve as the final taxable value for GST.
What has changed
In TSAAR Order No. 11/2018, the Telangana Authority for Advance Ruling clarified that pooling land without transferring legal title is not a supply and attracts no GST. However, building space for landowning directors is a taxable construction service. Because directors and the company are related parties, GST cannot be paid on actual cost alone; it must be calculated on 110% of the cost of providing the service under Rule 30 of the CGST Rules.
Who this affects
Real estate developers, construction companies, and individual landowners who pool land with company directors or partners to build shared commercial or residential projects.
An example
Alpha Builders Pvt Ltd owns Plot A, while its director owns adjacent Plot B. They pool the plots to construct an office complex without transferring land ownership, with the company charging the director ₹1 crore as the actual construction cost for their share. Under the logic of TSAAR Order No. 11/2018, the land pooling itself incurs no GST, but the construction work for the director is a taxable service. Because the director is a related person, GST must be calculated on ₹1.10 crore (110% of the ₹1 crore cost) rather than the actual ₹1 crore bill.
What you should do
Developers entering into land pooling agreements should review their GST calculations for construction services provided to related parties like directors. Keep in mind that an advance ruling binds only the company that applied for it and its local GST office. Other businesses facing similar setups should consult a tax professional or apply for their own advance ruling.
If you do nothing
If a developer charges related landowning directors only actual construction costs without applying the 110% valuation rule, tax authorities during an audit may demand short-paid GST. The tax officer can issue a notice to recover the unpaid tax along with interest and penalties. This can lead to unexpected cash flow strain and legal disputes with the tax department.
The terms explained
- input tax credit
- A mechanism allowing businesses to reduce the GST they owe on sales by deducting the GST they already paid on business purchases.
- related person
- Entities or individuals with legal or managerial ties, such as a company and its directors, where transactions are checked to ensure fair tax valuation.
- supply of service
- Any commercial activity or work provided for payment that is not a sale of goods or land, making it subject to GST.
- transaction value
- The actual price paid or payable for goods or services, which normally serves as the base amount for calculating GST.
The ruling in detail
Authority for Advance Ruling
M/s. Gowra Ventures Private Ltd
TSAAR Order No. 11/2018 dated 26-07-2018 · Telangana
Questions before the authority
- Whether in the facts and circumstances the pooling of land by way of amalgamation of the separate parcels viz Land 1 and Land 2 as described in the “Statement of relevant facts” would constitute a supply under the Central Goods and Services TaxAct, 2017 and Telangana Goods and Services Tax Act, 2017 (herein after referred to as Central and State GST Act)?
- Whether in the facts and circumstances construction activity undertaken by the Company, with respect to the share belonging to the Partners (as described in the "Statement of relevant facts”) would be treated a Supply of Service under the Central and State GST Act?
- Whether in the facts and circumstances, the recovery of construction cost by the Company from the “Partners” would be the transaction value for purpose of Section 15 of the Central and State GST Act to be valued in accordance with Sec 15 read with Rule 30 of the Central Goods and Services Tax Rules 2017 and Telangana Goods and Services Tax Rules 2017 (Central and State GST Rules)?
- Whether in the facts and circumstances the vesting of the constructed portion upon the "Partners", would independently constitute a supply besides the supply on account of recovery of construction cost as aforesaid by the Company?
Facts
The applicant, Gowra Ventures Pvt Ltd (Owner 1), owns Land 1 and intended to construct a multi-storeyed commercial building. Adjoining Land 2 is owned by seven individuals (Owners 2 to 8) who are also directors/partners in the applicant company. All owners entered into an MoU to pool/amalgamate Land 1 and Land 2 to construct a single project with enhanced FSI, with the applicant executing the entire construction and recovering the construction cost from the partners for their allocated built-up area.
Ruling
| Question | What the authority ruled |
|---|---|
| Pooling/amalgamation of separate land parcels (Land 1 and Land 2) | Would not constitute a supply Legal ownership of lands remains vested with respective existing owners |
| Construction activity undertaken by company for partners' share | Is a supply of service Covered under Clause 5(b) of Schedule II of the CGST/TGST Act, 2017 |
| Valuation of construction service provided to partners | 110% of the cost of provision of the service Valued under Rule 28(c) read with Rule 30 as parties are related persons |
| Vesting of constructed portion upon partners | Not an independent supply No separate service or consideration is received beyond construction cost recovery |
The Authority held that pooling or amalgamation of land parcels where legal ownership remains with respective owners does not constitute a supply. Construction carried out by the company for the share of the partners is a **supply of service** under Schedule II Clause 5(b). Since the partners are directors and related persons under Section 15, the value of service must be determined under Rule 28 read with Rule 30 at **110% of the cost of provision of service**. The vesting of the constructed portion in the partners does not independently constitute a separate supply.
Reasoning
The Authority noted that land is not 'goods' under Section 2(52), and pooling without transfer of title does not fall under Section 7. Construction of a complex prior to issuance of a completion certificate is taxable as a supply of service under Clause 5(b) of Schedule II. Since the landowning partners are directors of the developer company, they are related persons under Section 15 Explanation. Where open market value is unavailable under Rule 28(a) and (b), Rule 28(c) directs valuation under Rule 30, fixing the value at **110% of the cost of provision** of service.
Provisions relied on
- Section 7 of CGST/TGST Act, 2017
- Section 2(52) of CGST/TGST Act, 2017
- Clause 5(b) of Schedule II of CGST/TGST Act, 2017
- Section 15 of CGST/TGST Act, 2017
- Rule 28 of CGST/TGST Rules, 2017
- Rule 30 of CGST/TGST Rules, 2017
For the practitioner
This ruling confirms that mere land pooling without title transfer is non-taxable. However, developers constructing on pooled land for related land-owning directors/partners must pay GST on a valuation calculated as **110% of the cost of provision of service** under Rule 30.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/tsaar_order_no._11-2018_gowra_ventures_1.pdf
Legibility of the scan, as read: high.
Prepared 21-10-2026.
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