Most members of the Group of Ministers (GoM) of the Goods and Services Tax (GST) Council have indicated they are not in favor of providing any tax relief to the real estate sector concerning Joint Development Agreements (JDAs). Despite ongoing deliberations, the GoM is expected to maintain the current GST rate structure for collaborative ventures between developers and landowners, according to sources.
During a meeting held on Tuesday in Goa, the GoM, chaired by Pramod Sawant, Chief Minister of Goa, discussed various issues affecting the real estate sector under the GST regime. However, no final recommendations have been submitted to the GST Council as the committee continues to weigh its options. The GoM was set up in June to explore potential reforms to boost the sector under the current tax regime.
GST in JDAs: Pre and Post-April 2019 Changes
In JDAs, GST liability typically arises when possession or rights in the property are transferred, often at the time of handing over completed units to landowners. For JDAs entered into before March 31, 2019, the applicable GST rate was 18%, with developers eligible for Input Tax Credit (ITC) on the taxes paid for inputs used in the project. This helped developers offset their GST liability, making the tax burden more manageable.
However, for JDAs executed after April 1, 2019, the GST rates were revised to 1.5% for affordable housing and 7.5% for non-affordable housing, with no ITC benefits. The removal of ITC has resulted in increased project costs for developers, leading the industry to advocate for the restoration of ITC under the new regime.
Issues Surrounding JDAs and GST
The GoM is deliberating on whether JDAs should attract GST at all and whether the ITC benefit should be reintroduced. Other key issues include the taxability of development rights and units given to existing members in redevelopment projects. Tax experts argue that developers incur costs for providing free units to existing members, while the consideration received from new buyers already suffers GST.
Additionally, the real estate sector has raised concerns about the valuation of land for GST purposes. Currently, a one-third deduction from the value is allowed to calculate GST on under-construction property sales, but developers argue this does not accurately reflect land costs, particularly in metro cities where land values are higher.
The industry is also pushing for location-based land value deductions and the ability to claim land deductions on an actual basis where costs are available.
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