Ashmitha Enous
The issue of GST in redevelopment projects has sparked numerous litigations across India, with petitions filed in various high courts, including those in Mumbai, Nagpur, Gujarat, Delhi, and Karnataka. Highlighting the mounting legal challenges, Rohit Jain, Deputy Managing Partner, Economic Laws Practice (ELP), said, “Several petitions filed across India – Bombay (Mumbai and Nagpur benches), Gujarat, Delhi, Karnataka, etc.” He further informed the media, “CREDAI-MCHI has made multiple representations. A Group of Ministers has been formed to review these specific issues in real estate.”
“Flats sold in the open market attract 5% GST – a straightforward and expected tax.” However, complications arise when society development rights are involved. “Society transfers development rights to the developer – GST of 18% is applicable unless all flats are sold before obtaining the Occupation Certificate (OC),” explained Rohit Jain, Economic Laws Practice (ELP). He added, “Treated as a sale, developers are liable to pay 5% GST on these units at market value – although they are just fulfilling their obligation to society.”
Jain was speaking at a session hosted by CREDAI-MCHI, which featured a legal deconstruction of the recent Bombay High Court ruling on GST applicability in redevelopment projects. Joined by fellow ELP Harsh Shah, he highlighted the pressing legal inconsistencies plaguing redevelopment under GST law and urged urgent policy redressal.
“Redevelopment is a key solution to address housing needs in the state,” he reiterated, referring to the state government’s active push to accelerate such projects. “The Maharashtra Chief Minister’s special panel formed to promote redevelopment” reflects the urgency of the situation, he said.
Despite the government’s intent, Jain explained, the tax treatment of redevelopment projects is making them financially unviable. “Developers pay GST on materials and contractor services, without the benefit of input tax credit under the current scheme.” This not only inflates costs but also impacts the end customer, who is ultimately priced out of affordable housing options.
Jain made CREDAI-MCHI’s position clear: “Transfer of development rights should be treated as a transaction involving immovable property, which is outside GST’s scope.” On units handed back to society members, he emphasised, “Providing reconstructed flats to original members is not a sale, but a service obligation – taxing it as a sale is unfair and unjust.”
Clarifying a common misconception, he noted: “The Nagpur bench’s judgment in the Srinivasa Realcon case has been widely misunderstood. It ruled that the reverse charge mechanism does not apply to the developer, but didn’t eliminate GST on development rights altogether. Instead, if not payable by the developer, it may be payable by the society under forward charge, so GST liability still exists.”
He concluded with a word of caution: “There is no blanket exemption from GST on transfer of development rights or units given to existing members. Both matters are still pending with the Bombay High Court (Mumbai bench) and under review by the GST Council.”
“If we want to make redevelopment viable across Maharashtra and India, the cascading effect of GST must be urgently resolved. Otherwise, projects will stall and housing for all will remain a dream,” Jain warned, as the session wrapped up.
As the legal battles unfold, the real estate sector hopes the newly formed Group of Ministers will bring clarity and a resolution that can aid in easing the burden on developers and ensuring that redevelopment projects remain financially viable.
