Gst on hardship compensation during redevelopment

This query is : Resolved

SUNNY GOPICHAND BHAGIA (Querist)
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30 July 2019 Dear All,
Good Afternoon!!!

One of our Client are in Redevelopment of Societies, their DA was registered in November, 2017.

Now they have to pay Hardship Compensation to Society Members as the DA.

Kindly advice on the Applicability of GST on the same.

Will be helpful if can provide any supporting or clarification issued by the Department.

Thanks & Regards

Sunny

CA Anita Bhadra

CA Anita Bhadra (Expert)
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30 July 2019 Yes
GST is applicable on hardship compensation during redevelopment

Refer : . Zaver Shankarlal Bhanushali (GST AAR Maharashtra)

https://taxguru.in/goods-and-service-tax/gst-applicable-compensation-alternate-accommodation-damages-delayed-handover.html

SUNNY GOPICHAND BHAGIA

SUNNY GOPICHAND BHAGIA (Querist)
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13 August 2019 Mam,

But it was for Alternate Accommodation - Rent and i am talking about Hardship Compensation to Society Members as the DA

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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27 July 2024 The applicability of GST on hardship compensation paid during the redevelopment of societies, specifically in the context of redevelopment and compensation for hardship, can be a bit nuanced. Here's a detailed explanation of the GST implications on such compensation:

### 1. **Understanding Hardship Compensation**

**Hardship Compensation:**
- **Definition:** Hardship compensation is typically paid to society members to compensate for the inconvenience or hardship caused by the redevelopment process. This is separate from rental payments or compensation for alternate accommodation.

### 2. **GST Applicability on Hardship Compensation**

**GST on Compensation:**
- **Nature of Compensation:** Hardship compensation paid to society members for inconvenience or displacement due to redevelopment does not typically fall under the purview of GST. This is because such compensation is not considered a supply of goods or services but rather a form of settlement or compensation.

**Relevant Provisions:**
- **Supply of Goods or Services:** GST is applicable to the supply of goods or services. Hardship compensation, being a form of compensation rather than a supply of goods or services, generally does not attract GST.
- **Circulars and Notifications:** As of the latest information, there have been no specific circulars or notifications from the GST authorities that include hardship compensation as taxable under GST.

### 3. **Supporting References**

**GST Provisions:**
- **CGST Act, 2017:** The CGST Act defines what constitutes a supply of goods or services. Hardship compensation does not fit the definition of a supply under GST laws.
- **Clarifications:** The GST Department has issued various circulars and clarifications regarding the scope of GST. None of these specifically address hardship compensation as a taxable event.

**Example:**
- **Alternate Accommodation:** As you mentioned, compensation for alternate accommodation is often handled separately. If the compensation involves a supply of goods or services (such as rent), GST may apply. However, hardship compensation in itself is typically not subject to GST.

### 4. **Practical Considerations**

**Documenting Compensation:**
- **Invoices and Payments:** While hardship compensation is not subject to GST, ensure that all payments are well-documented and clearly labeled as compensation for hardship. This helps in maintaining transparency and proper record-keeping.

**Consulting with GST Experts:**
- **Professional Advice:** Given that this involves specific scenarios related to redevelopment, consulting with a GST professional or tax advisor is advisable. They can provide tailored advice and confirm the applicability based on the latest regulations and specific circumstances.

### 5. **Summary**

1. **GST Applicability:** Hardship compensation paid during redevelopment is generally not subject to GST as it is not considered a supply of goods or services.
2. **Supporting References:** No specific circulars or notifications address hardship compensation as taxable.
3. **Documentation:** Ensure proper documentation of the compensation payments for clarity and record-keeping.
4. **Consult Experts:** For tailored advice and confirmation, consulting a GST professional is recommended.

If there are updates or changes to GST regulations or if there are specific details in your case, getting professional advice will ensure compliance and accurate handling of GST obligations.