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Ramalingam Kalirajan |7028 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 10, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Apr 19, 2024Hindi

I have booked a residential flat with a developer who shall be developing a scheme comprising of 6 flats, 3 of which shall be retained by the land owners and 3 shall be sold by the developer to buyers like me. The developer has entered into an agreement for redevelopment with the land owners and he shall be receiving sale price of the flat from 3 persons purchasing the flats, I am one of them as stated earlier. The redevelopment agreement between the land owner and the developer is only for constructing the structure. The Sale-Deed shall be executed between the Vendor -that is the original land owners and the Purchasers like me. The developer shall be the Confirming Party, confirming the receipt of the entier payment, against the purchase of the flat, delivery of possession to the purchasers like me. Therefore the sale deed shall be between the purchaser and the land owners. The developer has rendered the services to be taxed under the GST Act to the land owners. The Land owners may recover the GST paid/charged/recovered by the developer, from the 3 purchasers. My queries are: 1. What is the rate at which on the services of development/construction rendered on the piece of land are taxable under the GST Act? 2. If I presume, it is at 5%, in that case am I not required to pay 1/6th of the GST paid by the land lord and nothing more than this? 3. Can developer demand the GST on the entire cost of the flat including the cost of the undivided share of land falling to my share? The land, under the Sale-Deed is sold/transferred by the Land lord and not by the developer, under what authority he can demand 5% GST on the cost of the land? 4. Are we not buying a ready to move or a ready made flat although we have to pay on the basis of the stage wise completion of the building structure and therefore only 1% GST? Please guide.

Ans: You're right to be questioning the GST implications in this situation. Here's a breakdown of your queries:

GST Rate on Development Services: The GST rate for construction services on an immovable property (land + building) is generally 5%. However, there's an exception for affordable housing projects, where the rate is 1%.

Sharing of GST by Landowners and Purchasers: Since the sale deed is directly between you (purchaser) and the landowner (vendor), you are not obligated to pay 1/6th of the GST paid by the landowner to the developer. You'll only pay GST on the value mentioned in your sale deed.

GST on Land Cost: The developer cannot demand GST on the entire cost of the flat, including the undivided land share. GST applies to the value of services rendered (construction) and not the land itself.

GST on Ready-to-Move Flats: The GST rate of 1% for ready-to-move flats only applies to completed projects where the occupancy certificate has been issued. In your case, it's an under-construction project, so the 5% rate applies.

Here's how the GST should ideally work in your scenario:

The developer pays GST to the government on his service charges for constructing the flats (5% of his construction cost).
The landowner pays stamp duty and registration charges on the land value mentioned in your sale deed.
You, the purchaser, pay GST to the developer on the value mentioned in your sale deed (excluding land cost) at the rate of 5% (assuming it's not an affordable housing project).
Recommendations:

Ask the developer to provide a breakup of the total cost, clearly mentioning the land cost and construction service charges.
Pay GST only on the construction service charges mentioned in your sale deed.
If the developer insists on including GST on the land cost, consult a tax advisor to understand your rights and explore further options.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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