The Group of Ministers ( GoM ) on Goods and Services Tax ( GST ) Council is unlikely to recommend any tax relief for the real estate sector, particularly regarding joint development agreements ( JDAs ) between developers and landowners. However, the GoM is still in deliberations and has yet to finalise its report to the GST Council.
A meeting of the GoM, convened by Goa Chief Minister Pramod Sawant, was held on Tuesday in Goa to discuss the tax framework for JDAs. The committee, which was constituted in June 2024, was tasked with devising a scheme to support the real estate sector under the GST regime. Although there were hopes for tax relief, the GoM has not submitted any concrete proposals for consideration yet.
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Under JDAs, landowners contribute land while developers provide the expertise, resources, and finances to construct the project. GST is typically triggered when possession or property rights are transferred, often at the time of handing over completed units to the landowner.
Before April 1, 2019, developers were subject to an 18% GST rate on construction services, but they could claim Input Tax Credit (ITC) on taxes paid for inputs used in the project. This ITC benefit allowed developers to offset their GST liabilities.
However, for JDAs executed after April 1, 2019, the GST rate was reduced to 1.5% for affordable housing and 7.5% for non-affordable housing, but without the benefit of ITC. This change has increased project costs, and the real estate sector has been urging for the reinstatement of ITC to alleviate financial burdens.
Experts point out that several unresolved issues remain regarding the taxability of JDAs, including whether development rights should be subject to GST, the treatment of units provided to existing members in redevelopment projects, and the valuation of land for GST purposes. For instance, in metro cities where land costs are higher than the standard one-third deduction allowed for under-construction property sales, developers argue that GST is effectively being levied on land value, which should not be the case.
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The industry has long requested location-based deductions for land value when calculating GST, particularly in metro areas like Mumbai and Delhi, where land costs are disproportionately high. Additionally, some are advocating for actual cost-based deductions when the value of land is clearly documented.
The GoM is expected to continue discussions on these issues in future meetings before submitting its recommendations to the GST Council.
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