GST Relief for Real Estate Sector: GoM Fails to Reach Consensus
Most members of the Group of Ministers (GoM) are not in favour of GST relief to the real estate sector, but discussions will continue before submitting a final report to the GST Council.
GstReal EstateJoint Development AgreementsInput Tax CreditLand ValuationReal Estate MumbaiSep 24, 2024
The industry is seeking availability of Input Tax Credit (ITC) even in the new GST regime, which was introduced on April 1, 2019. Under the new regime, the applicable GST rate is 1.5% for affordable housing and 7.5% for non-affordable housing without the benefit of ITC. No ITC benefit affects the overall project costs.
The GoM is deliberating on various aspects of Joint Development Agreements (JDAs), which include deciding whether ITC benefit should be available under the new regime, and whether the JDA should attract GST at all. Experts say several issues around JDAs include taxability on transfer of development rights, taxability on units given to existing members in case of redevelopment, and the nature of such services and value on which tax needs to be paid.
The industry expects the GoM to look into the aspect of valuation of land for the purpose of GST levy. Under the present provisions, a flat one-third deduction from value is given to compute GST liability. However, in many metro cities, the land cost for a developer is much more than one third of the overall apartment cost, and a flat one third deduction leads to indirectly levying GST even on the part of the land cost.
The industry is seeking to consider giving location-based deduction towards land value, to adequately reflect the value of land. For instance, higher deduction in metro cities like Mumbai, Delhi, etc., and comparatively lower deduction in say, tier 2-3 cities. The industry is also seeking to avail deduction towards value of land on actual basis, where such cost is clearly available.
The GoM's failure to reach a consensus on GST relief for the real estate sector is a setback for the industry, which has been struggling to cope with the new GST regime. The industry is hopeful that the GoM will continue to discuss the issue and come up with a favourable solution.
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Frequently Asked Questions
What is the current GST rate for affordable housing?
1.5%
What is the current GST rate for non-affordable housing?
7.5%
Is Input Tax Credit (ITC) available under the new GST regime?
No
What is the industry's demand regarding land valuation for GST levy?
Location-based deduction towards land value
What is the impact of the GoM's failure to reach a consensus on GST relief for the real estate sector?
Setback for the industry, which has been struggling to cope with the new GST regime
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