GST on Development Rights: Landowners in a Legal Quagmire
The Indian real estate market is booming, but a contentious issue has resurfaced, putting landowners in a dilemma.
GstDevelopment RightsReal EstateLandownersTaxationReal Estate NewsAug 04, 2024
The applicability of 18% GST on such transactions is likely to impact the cost dynamics of joint development and redevelopment projects across major property markets in the country. The core issue is whether GST is payable on property transactions like land sales, and who will be responsible for paying it to the government.
A landowner, who wished to remain anonymous, said that the reverse charge mechanism under GST stipulates that the responsibility for discharging tax lies with the receipt or the developers, not the supplier or landholders. This ensures a streamlined tax collection process and reduces compliance burden on landowners.
However, developers are disputing the reverse charge mechanism and trying to recover the tax dues from landlords through contracts. GST authorities have begun issuing tax summons and show cause notices to landholders, potentially leading to an increase in unnecessary litigation.
Abhishek A Rastogi, founder of Rastogi Chambers, who is representing realty developers before the apex court, said, \
Frequently Asked Questions
What is the issue with GST on development rights?
The issue is whether GST is payable on the transfer of development rights from landowners to real estate developers, and who will be responsible for paying it to the government.
What is the current status of the matter?
The matter is currently pending before the Supreme Court.
Who will be responsible for paying GST on development rights?
According to the reverse charge mechanism, the responsibility for discharging tax lies with the receipt or the developers, not the supplier or landholders.
What is the impact of GST on development rights on the real estate industry?
The levy of 18% GST on the value of development rights is likely to inflate project costs across key markets, making it unviable for all stakeholders, including landowners.
What should landowners and developers do in the meantime?
They should exercise caution and seek professional advice to avoid any potential disputes or litigation.
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