GST on sale of plot – lot of twists in its plot!!
- HSKA and Associates
- Apr 29, 2023
- 3 min read
Applicability of GST on development of a plain land parcel into saleable plots has been a debated topic right from the introduction of GST due to entry 5 of Schedule III to the CGST Act, 2017. The said entry excludes ‘sale of land’ from the purview of GST but is silent on the tax treatment with respect to sale of plots by providing additional amenities – Club House, Play Area etc.
This gap created an ample scope for conflicting interpretations as far as levy of GST on sale of plots was concerned except cases involving sale of plots if the entire sale consideration is received after completion of the development of the plots – which is considered as outside the purview of GST law.
Sale of building after completion having similar connotation only strengthened such thoughts. Notifications issued on April 1, 2019 further aggravated the matter to believe that sale of plots are to be equated to sale of apartment considering that both plots and apartments are treated as Project under RERA.
Circular 177/09/2022 dated August 3, 2022 clarified that sale of developed land after levelling, laying down of drainage lines etc is not taxable. Circular was ambiguous and silent on the aspect of supply of under development plot. This again created lot of confusion on the applicability of GST on plotted development.
We are happy to share that our partner, Annapurna Kabra, recently had an occasion to argue in the case of Godrej Properties Limited before the Authority for Advance Ruling (AAR), Karnataka bench on the question of applicability of GST on amounts collected towards sale of plots, basic infrastructure development and other common amenities and facilities where bookings are made either before or after release certificate - Release certificate is a proof of completion issued by the local authorities in the state of Karnataka. The amounts so collected as mentioned above are towards:
Plot - for conveyance of plot to the buyer;
Basic infrastructure development – for provision of electricity access, water and sewage access and laying of roads which are mandatory to obtain release certificate. These facilities are required to be relinquished by Developer to the local authorities; and
Other common amenities and facilities – for development of club house for the usage and enjoyment of the buyers/future residents in the project.
The AAR was convinced with the arguments placed on record by Annapurna Kabra that the amounts collected towards the plot including basic infrastructure development are towards the sale of land which is covered under entry 5 of Schedule III and hence GST on the same is not applicable. AAR agreed that GST is not applicable irrespective whether bookings of plot was done either before or after the release certificate was issued.
However, the AAR had a different perspective on the amounts collected towards other common amenities and facilities. They believed that the amounts collected was mainly towards providing access to the club house and is a distinct service by itself and cannot be considered as part of the sale of land. It also noted that unlike basic infrastructure development, club house and other amenities are not mandatory facilities to be provided under any law. Further, they noted that the ownership rights of such common amenities vests with Developer and would never get transferred to the plot buyer. For the foregoing reasons, the AAR concluded that amounts collected towards common amenities and facilities are liable to GST irrespective of whether the plots are sold before or after the issuance of release order. Further, the Ruling also holds that if one consolidated price is charged from the buyer, then charges proportionate to such common amenities should be made liable to GST.
To summarize
Amounts collected from customers | Sale of plots before Issuance of Release Order | Sale of plots after Issuance of Release Order |
Sale of Plots | Not liable to GST | Not liable to GST |
Basic Infrastructure Development Charges | Not liable to GST | Not Liable to GST |
Other Common Amenities and Facility Charges | Liable to GST | Liable to GST |
This is a much-awaited ruling for the real estate industry. One may also refer to recent decision of the AAAR, Karnataka on similar matter in the case of Rabia Khanum, wherein AAAR have ruled in favour of the Taxpayer that GST is not applicable on sale of plots.
Action Steps
Re-visit the GST Positions adopted with respect to Plotted Development;
Distinguish between Basic Infra and Common Amenities;
Segregate the costs into Plot, Basic Infra Charges and Common Amenities;
For the past transactions, if taxes already paid, then evaluate whether Developer should file the refund or Developer should facilitate the buyers to claim refund.
The ruling can be downloaded here
For any further discussion on the matter or for more clarity on this aspect, you may reach Annapurna Kabra on her mobile +91 99720 77441 or on her email id annapurna@hskaadvisors.com.
Consider Joining or WhatsApp Community for GST updates
コメント