GoM Meeting Update: No Further Exemption In GST For Long Term Land Lease; Here's What To Know!

The Group of Ministers (GoM) of GST Council has announced no further exemption in GST for long term land lease, in its latest meeting for real estate sector that was held in Goa. Apart from GST rates, the ministers also discussed other issues like tax norms of construction services by housing societies, definition of affordable housing among others. The decision comes at a time when real estate industry is seeking to avail deduction towards value of land on actual basis.

On the latest development, Gyanendra Tripathi, Partner & Leader (West), Indirect Tax, BDO India said, Under the present provisions, for levy of GST in case of sale of an under-construction property, a flat one third deduction from value is given to compute GST liability. However, in many metro cities, the land cost for a developer is much more than one third of the overall apartment cost and a flat one third deduction leads to indirectly levying GST even on the part of the land cost.

Tripathi further explained that it has been a standing demand of the industry to consider giving location-based deduction towards land value (e.g. higher deduction in metro cities like Mumbai, Delhi etc and comparatively lower deduction in say, tier 2-3 cities), to adequately reflect the value of land. The industry is also seeking to avail deduction towards value of land on actual basis, where such cost is clearly available. The deduction of value of land on actual basis has been permitted by the Gujarat High Court and now the issue is pending in the Supreme Court.

Also, he said, the taxability of Joint Development Agreements (JDAs) and Transfer of Development Rights (TDRs) has been a subject matter of complexity due to factors such as determining the appropriate value of supply, restrictions to claim input tax credit and the ambiguity with regards to the GST implications on profit-sharing arrangements and the industry would look forward to clearly laid down norms in this regard.

The GoM said, "The issues pertaining to grant of GST (Goods and Services Tax) exemption on the long term lease of land by private entity and sector specific exemption such as for tourism purposes was discussed at length," as per PTI report.

Additionally, the report said that the Ministers unanimously agreed and recommended that no further exemption is required. GST at applicable rates will continue to be levied on the same.