GST Relief for Real Estate Sector: GoM Remains Unconvinced
The Group of Ministers (GoM) of the Goods and Services Tax (GST) Council is not in favor of providing relief to the real estate sector with regard to tax incidence on collaborative ventures between developers and land owners.
GstReal EstateJoint Development AgreementsInput Tax CreditGoods And Services Tax CouncilReal EstateSep 24, 2024
Most members of the GoM feel that the rate structure should remain as it is for real estate projects under joint development agreements (JDAs). However, the committee will discuss the issue further in subsequent meetings before submitting a final report to the GST Council.
The real estate sector 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.
Joint Development Agreements (JDAs) are a common practice in the real estate sector in India, where landowners and developers collaborate to undertake construction projects. The landowner contributes the land, while the developer brings in the expertise, resources, and finances for developing the project.
The GoM is deliberating on various aspects of JDAs, including deciding whether ITC benefit should be available under the new regime and whether the JDA should attract GST at all. Experts say that several issues around JDAs need to be addressed, including taxability on transfer of development rights and taxability on units given to existing members in case of redevelopment.
The industry is also seeking clarification on the 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, leading to indirect levying of GST on the part of the land cost.
The industry is demanding a location-based deduction towards land value, where a higher deduction is given in metro cities and a lower deduction in tier 2-3 cities. They are also seeking to avail deduction towards the value of land on an actual basis, where such cost is clearly available.
The GoM's decision is expected to have a significant impact on the real estate sector, which is already facing several challenges. The sector is hoping that the GoM will consider their demands and provide some relief to boost the sector's growth.
Frequently Asked Questions
What is the current GST rate for real estate projects under JDAs?
The applicable GST rate is 1.5% for affordable housing and 7.5% for non-affordable housing without the benefit of ITC.
What is the industry seeking from the GoM?
The industry is seeking availability of Input Tax Credit (ITC) even in the new GST regime and clarification on the valuation of land for the purpose of GST levy.
What is the impact of the GoM's decision on the real estate sector?
The GoM's decision is expected to have a significant impact on the real estate sector, which is already facing several challenges.
What is the composition of the GoM?
The GoM is composed of ministers from various states, with Pramod Sawant, chief minister of Goa, as the convenor.
When is the GoM expected to submit its final report to the GST Council?
The GoM is expected to submit its final report to the GST Council after discussing the issue further in subsequent meetings.
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