GST relief on development rights might be granted to Realtors.

By Abhay Harish Shah, Realty Quarter

As the New Goods and Service Tax (GST) slashed from 12% to 5% for an under construction building, the Realty market has gone crazy to look out for their margin. According to the latest report, a new tax rule may offer relief to the property developer on the liability of the Goods & Services Tax (GST) for the transfer of rights in a property for development purposes (TDR).

A decision of the Chandigarh court last week ruled in favour of DLF Commercial Properties that an owner who transfers rights to the promoter to develop his property should be viewed as ‘benefits arising out of the transfer of an immovable property’, and, therefore, not subject to a service tax. This relieves all developers with outstanding proceedings under the former service tax regime and helps the sector argue that the analogy for not levying GST in TDR should be applied.

In the case of joint development agreements, the judgment offers new perspectives to contest that levy of GST – a popular housing model at present.

Abhishek Jain, partner (tax) EY India said, “This decision is intended to contribute to solving the long-standing TDR taxation dispute in the context of the service tax system, subject to a similar view upheld by higher courts if such a judgment is brought against.”

Further, he said, this provides real estate developers with an opportunity to investigate similar relief under GST through government representations or judicial proceedings.

K Vaitheeswaran, a Tax lawyer, stated that the judgment is the basis for an amendment to the CGST Act which describes the transfer of development rights as not supply of goods and services. Joint developments agreements are increasingly popular with increasing prices in the field of land, but GST on TDRs is a controversial area and the growth of the model is slowing.

TDRs are ambiguous with no clear provisions for transactions before April 1. The promoter will be liable for payment of GST (reversely charged) on units sold in the case of residential projects after the project completion. GST is attracted by all commercial TDRs.

The National Immovable Development Council claimed in a pre-budget memo this year that levying GST on TDR would be like taxing property, contrary to the essence of the GST Act.