Bajaj Alts Marks ₹950 Crore Real Estate Fund Close: Commercial Co-Development and Key GST Realities

Bajaj Alternate Investment Management Ltd (Bajaj Alts), the alternative asset management arm of Bajaj Finserv Ltd, has marked the initial close of its debut real estate vehicle, Bajaj Alts Real Estate – Growth Fund I, raising approximately ₹950 crore. The fund has set an ultimate target of ₹2,000 crore, a figure that includes a greenshoe option. Capital commitments have been assembled from institutional investors, family offices, and high-net-worth individuals, providing the investment platform with substantial dry powder to deploy into commercial office projects across leading metropolitan centers.

Unlike traditional credit-oriented funds that supply mezzanine financing or core funds that acquire pre-leased, yielding assets, Bajaj Alts is pursuing an equity co-development model. By entering equity joint ventures with established developers, the fund aims to capture greenfield and brownfield value creation in prime Grade A commercial properties. According to fund leadership, this posture aligns directly with structural occupier demand, predominantly led by Global Capability Centres (GCCs). Industry data from property consultancy Anarock indicates that GCCs commanded 45% of the 42.6 million square feet of gross office space leased across India’s top seven cities in recent benchmarks, with over 40% of GCC leasing directed toward flexible workspaces. By 2026, GCCs are projected to represent nearly half of all Grade A office demand.

While the investment thesis reflects strong institutional conviction in institutional office absorption, structuring commercial co-development vehicles requires careful navigation of the indirect tax regime. Moving through equity joint ventures into development triggers intricate Goods and Services Tax (GST) mechanisms, spanning development rights, construction procurement, input tax credit restrictions, and downstream leasing operational structures.

Equity Joint Ventures and the GST Framework for Real Estate Development

Co-development models fundamentally alter how risk, capital, and tax liabilities are apportioned. When an alternative investment fund (AIF) enters into an equity joint venture with a master developer, the operational delivery is typically housed within a dedicated special purpose vehicle (SPV). The tax implications begin at the inception of project rights.

Under Indian indirect tax statutes, the transfer of development rights (TDR) or long-term lease rights to a developer is subjected to specific GST treatment:

• Taxability of Development Rights: In commercial real estate projects, the transfer of development rights generally attracts GST at 18%. While residential projects benefit from conditional exemptions tied to completion timelines, commercial developments do not enjoy equivalent broad exemptions.
• Reverse Charge Mechanism (RCM): The liability to remit GST on development rights or floor space index (FSI) transfers typically shifts to the developer or project SPV under RCM, creating an upfront cash outflow before construction begins.
• Time of Supply Triggers: For commercial spaces, the time of supply for development rights arises upon the execution of agreements or milestone dates specified under statutory notifications, creating working capital demands that the equity vehicle must account for during project capitalization.

The Input Tax Credit Dilemma: Section 17(5)(d) and Commercial Assets

The defining indirect tax challenge for equity co-development funds targeting commercial assets intended for lease lies in the statutory blockage of input tax credits (ITC). When a fund and developer construct a commercial office park to generate annuity rental yields, the project incurs substantial GST across works contracts, engineering, procurement, and construction (EPC) services, as well as raw material supplies like steel and cement at rates between 18% and 28%.

Under Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act, input tax credit is blocked on goods and services received by a taxable person for the construction of an immovable property (other than plant or machinery) on their own account, even when such property is used in the course or furtherance of business. For developers constructing office complexes to hold and lease:

1. Embedded Tax Cost: Because the built asset is retained for leasing rather than sold prior to the issuance of a completion certificate (which would have attracted 12% GST as a works contract supply of under-construction real estate), the accumulated GST on capital expenditures cannot be effortlessly offset against downstream lease liabilities under orthodox departmental interpretations.
2. Margin Compression: This blockage embeds an effective tax cost of 10% to 15% directly into the development balance sheet, requiring joint-venture partners to calibrate their hurdle rates and equity underwriting cautiously.
3. Dispute Vulnerability: While constitutional challenges and interpretations around business continuity continue to be deliberated before judicial forums, tax authorities enforce strict disallowances. Managing this exposure requires SPVs to maintain granular accounting segregation between plant, machinery, specialized interior fit-outs, and core civil immovable structures to protect eligible credits. In this environment, initiatives aimed at streamlining indirect tax friction remain critical to safeguarding real estate capital deployments from prolonged audit litigation.

Downstream Leasing Realities: GCC Tenants and Flexible Workspaces

Once commercial office towers reach completion, the operational phase introduces a distinct revenue compliance framework. Commercial office rentals attract GST at the standard rate of 18% under forward-charge billing. However, tenant composition heavily dictates the operational compliance profile.

With GCCs acting as primary demand drivers, co-development assets must accommodate varied entity profiles:

• Supplies to Special Economic Zone (SEZ) Units: Many GCC facilities operate within SEZs. Leases granted to SEZ units constitute zero-rated supplies under Section 16 of the Integrated Goods and Services Tax (IGST) Act. The lessor SPV can supply premises under a Letter of Undertaking (LUT) without charging IGST, provided statutory endorsements and authorized operation certifications are secured from development commissioners.
• Domestic Tariff Area (DTA) GCCs: Where GCCs operate outside SEZs as standard DTA entities exporting IT and back-office services, standard 18% IGST or CGST/SGST applies to lease rentals. These tenants typically utilize this input tax to offset output tax or claim accumulated export refunds.
• Flexible Workspace Dynamics: Given that over 40% of GCC leasing activity currently flows through flexible workspace formats, SPVs must structure leasing agreements carefully. Revenue streams derived from managed office spaces—encompassing utilities, concierge maintenance, and high-speed communications—require precise contract drafting to avoid classification disputes regarding whether agreements constitute passive commercial leasing or composite supply packages with different place-of-supply considerations. In major capital operations, understanding strategic corporate joint ventures and structural tax continuity is essential when carving out project management and operational assets into specialized delivery entities.

Capital Deployment and Fund-Level Compliance

Incorporated in 2025 as a wholly owned subsidiary of Bajaj Finserv, Bajaj Alts spans private equity, listed equities, and real estate. As it plans capital deployment from the Growth Fund I in coming months, maintaining tax hygiene across fund management activities is as critical as SPV-level diligence.

Management fees charged by the alternative investment manager attract 18% GST, which constitutes a non-recoverable operational expense for pooled investment vehicles under conventional fund frameworks. Furthermore, structuring capital infusions into co-development platforms requires strict demarcation between equity subscriptions, hybrid debt instruments, and joint development contributions to maintain compliance with both direct tax provisions and indirect tax frameworks governing works contract participation.

As institutional capital continues to institutionalize India’s office development pipeline, the success of equity-led development funds will depend not only on site selection and developer partnership quality, but on rigorous fiscal structuring that accounts for unyielding real estate GST parameters from land acquisition to final tenant lease execution.

Frequently Asked Questions