Experts say the Supreme Court’s decision on GST on under-construction flats will reduce buyers’ tax burden.

According to experts, the Gujarat High Court ruling that the actual value of land should be deducted before levying GST on under-construction flats would reduce the tax outlay for homebuyers if the contractual arrangement clearly denotes the land value.

Currently, GST is levied on the sale of under-construction flats/units, with the entire value of the flat or unit (including the underlying land value) taxed after an Ad Hoc deduction of 1/3 of the value of the flat/unit towards land, regardless of the actual value of the land.

According to experts, the actual value of land in urban areas or metro cities is much higher than the 1/3 value of a flat, and the application of the 1/3 deduction is arbitrary in nature because it is applied uniformly regardless of the area, size, or location of land.

“This is indirect taxation on land, and the Union’s legislative authority to levy GST on land is limited. The decision of the Gujarat High Court will be directly applicable where the sale agreement clearly specifies the value of land as well as construction services. This is a well-reasoned and fair decision; if implemented, it will significantly reduce the tax incidence on individuals purchasing under-construction flats “According to Naresh Sheth, Partner at N.A. Shah Associates.