Taxation of Immovable Property: GST Issues

Taxing immovable property being land and/or building, has always been a critical issue under different tax regimes whether it is direct tax or indirect tax. In the recent past, various provisions have been made in the tax laws to bring various incomes, charges, or fee etc. related to immovable property under tax regime.

Taxability of Immovable property under GST law can be explained with the following provisions

  • Paragraph 5 to schedule III of CGST Act,2017 specifies “Sale of land and subject to paragraph 5(b) to schedule II, sale of building” to be treated as neither supply of goods nor supply of services.
  • Schedule II of the CGST Act,2017 contains a list of activities or transactions which have been classified either as supply of goods or supply of services. As per clause 5 (b) of the schedule II, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required by the competent authority or after its first occupation, whichever is earlier shall be treated as a supply of services.

Therefore, it is crystal clear that if a person wants to enjoy privilege of non-payment of GST on transactions relating to immovable property then the transaction should be certainly of either sale of land or sale of flats/buildings after receipt of occupancy certificate, building completion certificate etc.

However, the same has been tested before the advance ruling authorities in Gujarat (AAR No. GUJ/GAAR/R/2020/11 in Shree Dipesh Anil kumar Naik, dated 19th May 2020), wherein it was held that the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’.(covered in schedule II as mentioned above) and because the said activity is covered under ‘construction services’, GST is payable on the sale of developed plots. The AAR, while passing the ruling, said that the applicant sells the developed land as plots and the sale price includes cost of land, as well as price of amenities on a proportionate basis.

“Developed Plots here means plot of land developed with an infrastructure such as Drainage line, Water line,

Electricity line, Land levelling etc. as per the requirement of the approved Plan Passing Authority (i.e. Jilla Panchayat).”                  

Our observation :

This ruling goes against the basic framework of GST where tax is levied on movable goods and related services and GST does not attract if it is a case of transfer/sale of immovable property.

The concept of composite and mixed supply is not at all discussed by AAR. Generally, such supplies are treated as composite supply since principal supply is always land and ancillary services such as sewerage, drainage line, water line, electricity line etc are provided along with the land and without such ancillary facilities, plot of land would not be marketable. Also, the requirement of development on land was not the seller’s decision but a requirement of plan passing authority which must be fulfilled in order to sale such plot of land. In addition, such advance ruling would have adverse impact on real estate sector where the seller will lose the tax neutral status awarded to the sale of developed plots.

Author: Pallavi Jain

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