The Group of Ministers (GoM) within the GST Council met in Goa to discuss the real estate sector's tax structure, particularly joint development agreements (JDAs). Most members oppose tax relief, advocating for the current rates. The GoM also confirmed no additional exemptions for long-term land leases and discussed affordable housing definitions and construction service taxability. Further analysis on land value for construction services is required, with the next meeting set for October 25.
Last week, the Group of Ministers (GoM) within the Goods and Services Tax (GST) Council convened in Goa. The meeting was led by Chief Minister Pramod Sawant and various issues related to the real estate sector were discussed. Key attendees included finance ministers from Bihar, Maharashtra, Gujarat, Kerala, Punjab, Uttar Pradesh, and central government GST officials. The committee was formed in June to suggest a scheme to enhance the real estate sector under the GST regime, but it has yet to submit any report to the Council.
According to reports, several members of the GoM backed the current rate structure for real estate projects under joint development agreements (JDAs) and endorsed that they should remain unchanged. Further discussions will take place in future meetings before a final report is submitted to the GST Council.
In JDAs, GST is typically triggered when possession or rights to the property are transferred, usually at the time of handing over completed units to the landowner. For agreements made before March 31, 2019, an 18% GST applied to construction services, allowing developers to claim input tax credit (ITC) on project-related taxes. This ITC mechanism made tax credit recovery more favourable for developers.
However, for JDAs executed on or after April 1, 2019, the GST rates were revised to 1% for affordable housing and 7.5% for non-affordable housing, without the benefit of ITC. This absence of ITC significantly affects overall project costs, leading the real estate sector to seek the restoration of ITC benefits under the new regime.
According to a report by Financial Express, the GoM unanimously decided that no further exemptions would be granted for the long-term lease of land by private entities or for sector-specific exemptions, such as those for tourism. The current GST rates will continue to apply. Additionally, issues related to the taxability of construction services provided by co-operative housing societies to members in new or redevelopment projects were discussed in depth, with further deliberation required after obtaining relevant state data.
The GoM also addressed the value limit of INR 45 lakh for defining affordable residential apartments in metropolitan areas, agreeing to gather inputs from several states, including Karnataka, West Bengal, Tamil Nadu, Uttar Pradesh, Maharashtra, and Delhi, to reach a consensus. The discussion on determining land value for calculating the value of construction services in apartment sales has been deferred for further examination. The next GoM meeting is scheduled for October 25, where these matters will continue to be evaluated.
In conclusion, the GoM is committed to refining the tax framework for the real estate sector while considering stakeholder inputs, aiming for a balanced approach that supports growth without compromising revenue.
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