Undivided Share Deed Plus Construction Agreement: When the Land Part Escapes GST
Tamil Nadu's Advance Ruling No. 21/ARA/2025 for a Saligramam joint development held that a landowner's undivided share sale deed covering the built-up area is not a land sale outside GST, and applied 7.5 per cent on the total less one-third. When the land value is excluded, for Bengaluru buyers.
The paperwork for a flat in a small joint development can look like two separate purchases. The landowner signs a sale deed transferring an undivided share of land to the buyer, and the builder signs an agreement to construct the flat. Since land is outside GST, it can be tempting to assume the land part of the price carries no tax. A Tamil Nadu advance ruling dated 9 May 2025 on a four-flat project in Chennai's Saligramam took a closer look at that assumption, and set out when the land value is really excluded.
The ruling is Advance Ruling No. 21/ARA/2025 for M/s Sripriya Constructions Private Limited, listed on the GST Council's advance ruling register. Undivided share deeds paired with construction agreements can also appear in joint developments outside Tamil Nadu, so this guide reads it for Bengaluru buyers. It is buyer guidance, not tax advice, and an advance ruling answers one applicant's question on its own facts.
The short answer. The Tamil Nadu authority rejected a builder's claim that the landowner's sale deed for the undivided share of land, covering the built-up area to be constructed, made the whole transaction a sale of land outside GST. It held that the builder's activity is a supply of service under paragraph 5(b) of Schedule II, taxed at 3.75 per cent CGST and 3.75 per cent SGST on the total amount charged, less a deemed one-third for land. It said that if the land transfer is completed before or independently of construction, excluding the land value would be substantiated, but where consideration in a composite contract is not split, GST applies on the entire value subject to the one-third deduction. The trade-off: an undivided share deed does not by itself take the land part outside GST; what matters is whether the land sale truly stands apart from the construction.
What was the arrangement in the Chennai case?
A small joint development. The ruling records that the builder entered into a joint development agreement dated 23 November 2023 with the landowner for a project at Saligramam, permitting construction of 6,318 square feet of built-up area in four apartments. Two apartments of 3,158 square feet were handed to the owners, and the builder kept the other two flats of 3,160 square feet for sale to its buyers.
The builder said that after a change in Tamil Nadu's registration rules effective 14 December 2023, the sub-registrar told it that undivided share documents fall under the first sale category and that composite value, covering the built-up area, must be followed for registration. From that, the builder inferred that the entire value represents sale of land, even though it, and not the landowner, would construct the building.
What did the builder ask, and what was the answer?
Whether the landowner's sale deed was enough to make it a land sale. The builder asked whether execution of a sale deed by the landowner for the undivided share area covering the built-up area to be constructed would be sufficient to claim exclusion as sale of land under item 5 of Schedule III, so that it had no GST liability on constructing the built-up area for buyers of the apartments allocated to it.
The ruling's answer was no. It held that the claim of exclusion as sale of land for the sale deed executed by the landowner for the undivided share area, including the built-up area constructed by the applicant, resulting in non-liability on construction for buyers of apartments allocated under the joint development agreement, does not fall under item 5 of Schedule III.
| Point | What the Tamil Nadu ruling said |
|---|---|
| Landowner's undivided share deed covering the built-up area | Not enough to treat the whole as a sale of land outside GST |
| Nature of the builder's activity | Supply of service under paragraph 5(b) of Schedule II |
| Rate applied | 3.75 per cent CGST plus 3.75 per cent SGST, under entry 3(ia) |
| Land deduction | Deemed one-third of the total amount charged |
| Stamp duty composite value norms | No relevance to GST applicability |
How is GST worked out on such a flat?
On the full price, less one-third. The ruling said GST is levied at 3.75 per cent each under the CGST and TNGST Acts on the total amount charged for the supply of the flat, less the deemed one-third value for transfer of land or undivided share of land, under entry 3(ia) of Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 3/2019. The effective result on the total price is 5 per cent.
For a buyer, take a flat priced at Rs 1.2 crore across the undivided share deed and the construction agreement. Deducting one-third leaves Rs 80 lakh. At 7.5 per cent, GST is Rs 6 lakh, which is 5 per cent of Rs 1.2 crore. That is the same effective rate described in our guide to a Hosur ruling on villas sold with two agreements.
Can the builder deduct the actual land value instead of one-third?
Not under the notification, according to the Finance Ministry. Question 36 of the Tax Research Unit's FAQs on real estate dated 7 May 2019 asks whether a developer can take a deduction of the actual value of land involved in the sale of a unit instead of the deemed value under paragraph 2 of Notification No. 11/2017. The answer is no: the valuation mechanism in paragraph 2 clearly prescribes a one-third abatement towards the value of land.
That is why the land price written into an undivided share deed does not, by itself, set the GST base in a composite deal. If the deed shows a high land value and the construction agreement a low one, the notification's deemed one-third still applies to the total. The same FAQ, in its second part, says that for the Rs 45 lakh affordable housing test, all amounts charged by the promoter, including parking, preferential location and common facility charges, form part of the gross amount, while stamp duty and maintenance deposits do not.
When would the land value be excluded?
When the land sale stands on its own. The ruling said the execution of the sale deed by the landowner for the undivided share is a critical determinant in establishing whether the transfer of land is an independent transaction. If such execution is completed before or independent of the construction activity, the exclusion of the land value from GST liability is substantiated. For a composite contract where consideration is not bifurcated, it said, GST is payable on the entire transaction value, subject to the one-third deduction of land value.
It also noted what the builder had not produced. The ruling said the applicant had not produced any document like an allotment letter, a conveyance deed for the landowners' share, or a completion certificate that would take the transaction out of the purview of GST.
What should a buyer look for in the paperwork?
Evidence of when and how the land changed hands. The ruling's test turns on whether the land transfer was completed before, or independently of, the construction. In practice, that means looking at the dates and terms of three documents: the joint development agreement between landowner and builder, the landowner's sale deed for your undivided share, and the builder's construction agreement with you. If the land sale is executed first and stands on its own, with its own consideration, the ruling's reasoning supports excluding that land value. If the two documents are signed together as one package with a single price schedule, the ruling's reasoning points to GST on the whole, less one-third.
Ask the builder which way it is treating your purchase and why, and ask it to put that in writing before you pay. If it charges GST only on the construction agreement, ask what makes the land sale independent in your case.
Do stamp duty valuation rules change the GST answer?
No, on this ruling. It said that while Schedule III treats land as neither a supply of goods nor services, Tamil Nadu's order and circular of December 2023, which brought in composite value of land and building for levy of stamp duty and registration charges, have no relevance to the applicability of GST. It added that there had been no clarification or amendment to the GST law or notifications in light of the new registration norms, so in their absence the builder's claim was not tenable. For buyers, the lesson is that the value used for stamp duty and the value used for GST are worked out under different laws. Our guide to buying from a landowner's share covers the other GST questions in a joint development.
A seven-point checklist for undivided share purchases
- Ask whether your purchase uses an undivided share deed and a separate construction agreement.
- Ask whether the land sale is executed before or independently of construction.
- Get the total price across both documents.
- Ask the builder whether GST is charged on the total less one-third, or on construction alone.
- Check whether your flat meets the affordable housing test, which changes the rate.
- Keep the stamp duty value and the GST value separate in your own calculations.
- Keep the joint development agreement reference, sale deed and construction agreement together.
Frequently asked questions
Does an undivided share sale deed make my flat purchase a land sale outside GST?
Not by itself, according to Tamil Nadu Advance Ruling No. 21/ARA/2025. It held that a landowner's sale deed for the undivided share covering the built-up area did not make the builder's construction for buyers a sale of land under item 5 of Schedule III.
What GST rate did the Saligramam ruling apply?
The ruling applied 3.75 per cent CGST and 3.75 per cent SGST on the total amount charged for the flat, less a deemed one-third value for land or undivided share of land, under entry 3(ia) of Notification No. 11/2017 as amended by Notification No. 3/2019.
When can the land value be excluded from GST?
The ruling said that if the landowner's sale deed for the undivided share is executed before or independently of the construction activity, excluding the land value is substantiated. Where consideration in a composite contract is not split, GST applies on the entire value subject to the one-third deduction.
Does Tamil Nadu's composite value rule for registration affect GST?
No, according to the ruling. It said the December 2023 Tamil Nadu order and circular on composite value of land and building for stamp duty and registration charges have no relevance to the applicability of GST, in the absence of any change to the GST law or notifications.
Last updated 2026-11-05. PropNewz Team.
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