The Telangana High Court's ruling dismissing a real estate developer's challenge against GST imposition on development rights transfers within joint development agreements is set to reshape property markets nationwide. The 18% GST levy on development rights value, upheld by the court, particularly affects major markets like Mumbai, Pune, Bengaluru, Hyderabad, and Kolkata, potentially rendering projects financially unviable. The dispute, originating from a 2019 GST notification, raises concerns about the taxability of joint development agreements and the timing of tax payments. With unresolved issues likely to escalate to the Supreme Court, stakeholders await clarity on the contentious taxation of development rights transfers, crucial for the feasibility of redevelopment projects nationwide.
The Telangana High Court has delivered a significant ruling, dismissing a legal challenge by a real estate developer against the Goods & Services Tax (GST) imposition on the transfer of development rights within joint development agreements. This landmark decision is expected to have far-reaching implications on property markets nationwide, particularly reshaping the cost dynamics of redevelopment projects. The 18% GST levy on the value of development rights is likely to impact various projects in major markets such as Mumbai, Pune, Bengaluru, Hyderabad, and Kolkata, making them financially unviable for stakeholders, including landowners.
The issue arose following a GST notification in 2019, prompting the South India-based developer to file a writ petition in 2020. The petitioner argued that the taxation authority effectively sought to impose tax on a transaction resembling the sale of land within joint development agreements. The central question before the High Court was whether GST is applicable in joint development agreements when there is a transfer of development rights from landowners to developers, raising broader concerns about the timing of tax payments.
Abhishek A Rastogi, founder of Rastogi Chambers, who represented the petitioner, indicated that this industry issue may only find resolution before the Supreme Court, as several writ petitions on the matter are pending across various courts. The ruling underscores the contentious nature of the taxability of transactions involving the transfer of development rights, with arguments contending that such transfers are akin to land sales, exempt from GST.
Real estate developers had previously expressed concerns to the Ministry of Finance about the impact of GST on rehabilitation apartments provided free of cost to existing occupants as part of redevelopment projects. The Confederation of Real Estate Developers' Association of India (CREDAI) - MCHI wrote to Finance Minister Nirmala Sitharaman, requesting a change in the GST structure to ensure the viability of redevelopment projects in the Mumbai Metropolitan Region (MMR).
Redevelopment projects, especially those involving rehabilitation, play a pivotal role in Mumbai's property market, given the scarcity of vacant land parcels in the densely populated city. Currently, around 19,000 properties in Mumbai are awaiting redevelopment, highlighting the significance of this ruling in the broader context of real estate development across India. The potential impact on taxation and feasibility of such projects underscores the need for clarity and resolution, making this a pivotal moment in the real estate sector's regulatory landscape.
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