GST Relief for Real Estate Sector Unlikely, Says GoM
Most members of the Group of Ministers (GoM) are not in favour of providing GST relief to the real estate sector, particularly with regard to joint development agreements (JDAs) between developers and land owners.
GstReal EstateJoint Development AgreementsInput Tax CreditTax ReliefReal Estate NewsSep 24, 2024
The GoM, constituted in June to suggest a scheme to boost the real estate sector under the GST regime, met in Goa on Tuesday to discuss the issue. However, sources say that most members feel that the rate structure should remain as it is for real estate projects under joint development agreements (JDAs).
In JDAs, GST is typically triggered when possession or rights in the property are transferred, usually at the time of handing over the completed units to the landowner. For such agreements entered into before March 31, 2019, GST at 18% was applicable on the construction services, but the developer was entitled to claim Input Tax Credit (ITC) on taxes paid on inputs used for the project.
However, for JDAs executed on or after April 1, 2019, the GST rates were revised. The applicable GST rate is now 1.5% for affordable housing and 7.5% for non-affordable housing without the benefit of ITC. The real estate sector is seeking availability of ITC even in the latter regime.
Experts say that several issues around JDAs need to be addressed, including 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 is also seeking clarity 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 GoM is expected to submit its final report to the GST Council soon, but it remains to be seen whether the real estate sector's demands will be met.
About the GST Council
The GST Council is a constitutional body that was established to oversee the implementation of the Goods and Services Tax (GST) in India. The Council is chaired by the Union Finance Minister and comprises representatives from all states and union territories.
About the Group of Ministers (GoM)
The GoM is a committee constituted by the GST Council to suggest a scheme to boost the real estate sector under the GST regime. The committee is headed by Pramod Sawant, Chief Minister of Goa.
About Economic Laws Practice
Economic Laws Practice is a law firm that provides legal services to clients in the areas of taxation, regulatory, and corporate law.
About BDO India
BDO India is a professional services firm that provides audit, tax, and advisory services to clients across various industries.
Frequently Asked Questions
What is the current GST rate for real estate projects under joint development agreements (JDAs)?
The applicable GST rate is now 1.5% for affordable housing and 7.5% for non-affordable housing without the benefit of ITC.
What is the main demand of the real estate sector regarding GST?
The real estate sector is seeking availability of Input Tax Credit (ITC) even in the latter regime.
What is the issue with the current valuation of land for GST levy?
The current provisions provide for a flat one-third deduction from value to compute GST liability, which may not reflect the actual land cost in many metro cities.
Who is the convenor of the Group of Ministers (GoM) constituted to suggest a scheme to boost the real estate sector under the GST regime?
Pramod Sawant, Chief Minister of Goa, is the convenor of the GoM.
What is the expected outcome of the GoM's report to the GST Council?
The GoM is expected to submit its final report to the GST Council soon, but it remains to be seen whether the real estate sector's demands will be met.
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