In times of pandemic, the realty sector has suffered the most and the sales of the relevant sector have also been affected. Also, several GST issues have been faced by the real estate sector in India. These issues are stopping better compliance communication with the new indirect taxation system. Below is the list of all issues which we covered in this article post.
GST Issue on Transfer of Development Rights (TDR) for the Realty Sector
Nowadays, it is a big GST issue. The major thing to discuss is the imposition of GST on the transfer of development rights (TDR). To elaborate on the TDR, the same would be the arrangement in which the owner of the land used to transfer the development rights of the land to the developer to build the complex or building and in turn, the landowner obtains the consideration in cash or portion of constructed flats. In this, the government would treat TDR as a service responsible for GST.
On the immovable property, no GST would be subjected to apply. Since the land is an immovable item, thus no GST is liable to pay. Towards this according to the General Clause Act, 1897, the immovable property consists of land, and the advantage to comes out of the land. Tax Deducted at Source (TDS) should be attached with the land and hence an immovable property, hence coming out of the GST compliance. But the government understood that it results in a higher cost for the buyers because of the GST levy as a cost for purchasers.
GST Issue on Floor Space Index (FSI) for the Real Estate Industry
The transfer of floor space index (FSI) is another GST issue. A builder who has the permit to build a floor area maximally on a specific plot or the land. During the times with respect to the surrender of the rights to the land via developers to the local municipal council, some other FSI has provided to the developers to the local municipal council, and another FSI is allotted to the developers from the council. In the present times, the mentioned grant of GST FSI would be imposed and the developers are responsible to release that.
Read Also: Impact of GST on Real Estate Sector in India
FSI would act as permission provided for the under-construction building or any land through the way that the constructed premise should not exert a burden on the ground beyond a precise limit. The same activity would not be treated as a service exigible to GST. GST would be subjected to apply on the GST FSI either issued by the local council or next sold by the others.
Most Common GST ITC Issue for Realty Sector
The additional concern is the relief in the Input Tax Credit for the assessee. The same is understood and the ITC permitted is not permitted to the assessee for construction of immovable assets. Some assessee builds their floors on their own or buys the constructed one for businesses.
When the specified property is the core of the business, like hotels, resorts, commercially rented properties, theatres, and others, and GST is paid on the revenue generated from these businesses, disallowing ITC of GST paid on inward procurements concerned to construction certainly demonstrates harmful to the business.
Hon’ble Orissa High Court said on the concern of Safari Retreats in which the construction was not permitted to the business. But the problem is pending to the Hon’ble Supreme Court along with that the industry players are just thinking to take the ITC on the construction of the immovable property.
To remove a bunch of taxes GST has been introduced. While because of the above-said GST issues the purpose seems to have been defeated.
