Realtors may get GST relief on development rights


CHENNAI: A new service tax ruling may offer real estate developers relief on the Goods & Services Tax (GST) liability on transfer of rights in a property for development purposes (TDR).

Ruling in favour of DLF Commercial Properties, a decision by Chandigarh tribunal last week held that an owner transferring rights to a promoter to develop his property should be seen as ‘benefits arising out of transfer of an immovable property,’ and hence not be subject to service tax. Tax practitioners and GST experts TOI spoke to say that this brings relief to all developers with pending litigations under the erstwhile service tax regime, and also helps the sector argue for the analogy to be applied for not levying GST on TDR.

The judgment gives a new perspective to contest the levy of GST in cases of joint development agreements, a popular housing model in current times. “This ruling should help resolve the long-pending dispute on taxability of TDRs under the service tax regime subject to a similar view being upheld by higher courts if this judgement is appealed against,” Abhishek Jain, partner (tax) EY India, said.

This gives real estate developers an opening to explore similar relief under GST through representations to the government or through judicial processes, he added. Tax lawyer K Vaitheeswaran said the judgment forms a base to amend the CGST Act to “declare the transfer of development rights as neither supply of goods nor supply of services.” With increasing land prices, joint development agreements are growing in popularity, but GST on TDRs is an area of dispute, slowing the growth of the model.

For transactions prior to April 1, taxation of TDRs is ambiguous with no clear provisions. For those post April 1, promoter is liable to pay GST (on reverse charge basis) on units sold after project completion in case of residential projects. All commercial TDRs attract GST.

In a pre-budget memo this year, the National Real Estate Development Council claimed that levying GST on TDR is akin to taxing immovable property, going against the essence of GST law.

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