CREDAI calls for the removal of the GST on free-of-charge apartments offered in redevelopment projects.

NEW DELHI: In order to make rehabilitation projects economically viable, particularly in the Mumbai region, realtors’ group CREDAI has urged the government to abolish the GST on units that are provided free of charge to current tenants. When meeting with Union Finance Minister Nirmala Sitharaman, a delegation from CREDAI and CREDAI-MCHI made an official representation in this regard.

According to a statement from CREDAI, at the discussion, they voiced their concerns regarding “the impact of GST being levied on reconstruction projects/ rehabilitation flats which are being built and given back, free of cost, to existing occupants.”

With the regulations for redevelopment in the Mumbai Metropolitan Region (MMR) falling under the purview of DCPR 2034, which supports such projects by allowing developers to use higher FSIs (floor space indices), CREDAI MCHI claimed that the GST imposed on such projects is defeating the very purpose of increasing real estate value by seriously jeopardizing the financial viability of numerous projects.

The provision of new homes to current occupants, tenants, flat owners, and slum dwellers (output service) and the sale of the flats, shops, and offices (sale component) on the open market are currently viewed as separate transactions, which results in increased tax requirements, the statement continued.

CREDAI claimed that it had made numerous arguments to restructure the GST provisions in order to create an environment that is more favorable for rebuilding projects.

“The flats to existing occupants/slum dwellers/tenants/flat owners are offered free of cost, and hence no GST should be charged where there is no consideration,” the statement stated, noting that the cost of construction and rehab is already included in the cost of sale component.

As a result, taxing the sale and rehab separately would result in double taxation, according to CREDAI.

The statement continued, “Sale component is already offered for GST, and therefore the value of construction of rehab is also offered for GST being within it.

According to CREDAI, the building of rehabilitation projects is an input service that is necessary for the building of sale components, which is an output service.

According to the group, “In actuality, 10% GST is currently being charged on flats being sold from the sale component (5% on rehab and 5% on sale, both borne by ultimate consumers).”

The MMR is one of the most lucrative real estate markets in India, but according to Boman Irani, president of CREDAI National, the area needs a supportive redevelopment ecosystem to reach its full potential.

About 50% of the population still lives in slums or old, decaying structures, he continued, and there are many of these.

For Irani, some regulatory and taxation issues need to be corrected, which will improve the long-term demand-supply for these projects.