CREDAI urges Centre to remove GST on flats given free of cost in redevelopment projects

CREDAI said that the construction of rehab projects is an input service which is a prerequisite for construction of sale component which is the output service. (Representative Image)

Realtors' body CREDAI has demanded the government should do away with the GST on flats which are given free of cost to existing occupants in redevelopment projects to make them economically viable, especially in the Mumbai region.

A delegation from CREDAI and CREDAI-MCHI has met Union Finance Minister Nirmala Sitharaman and made a formal representation in this regard.

In the meeting, they expressed concerns over "the impact of GST being levied on redevelopment projects/ rehab flats which are being built and given back, free of cost, to existing occupants", CREDAI said in a statement. With the regulations for redevelopment in Mumbai Metropolitan Region (MMR) coming under the ambit of DCPR 2034 that encourages such projects with a higher FSI (floor space index) allowed for developers, CREDAI MCHI said the GST being levied on such projects is defeating the very purpose of enhancing real estate value as it puts the financial feasibility of numerous projects under severe risk.

"Currently, providing new houses to existing occupants/tenants/flat owners/slum dwellers (output service) and selling the flats/shops/offices (sale component) in the open market are being viewed as separate transactions - leading to higher tax obligations," it added.

CREDAI said it has put forth multiple arguments to restructure the GST provisions for a more conducive ecosystem for redevelopment projects.

"The flats to existing occupants/slum dwellers/tenants/flat owners are provided free of cost and hence no GST should be charged where there is no consideration," it said, adding that the cost of construction of rehab is already subsumed in the cost of sale component. Hence taxing both rehab and sale separately would lead to double taxation, CREDAI said. Hence taxing both rehab and sale separately would lead to double taxation, CREDAI said.

"Sale component is already offered for GST and hence in effect value of construction of rehab is also offered for GST being within it," it added.

CREDAI said that the construction of rehab projects is an input service which is a prerequisite for construction of sale component which is the output service.

"In effect, 10 per cent GST is currently being charged on flats (5 per cent on rehab and 5 per cent on sale both borne by ultimate consumers) being sold from the sale component," the association said. The MMR is one of the most valuable real estate markets in India but need for a conducive redevelopment ecosystem for the region was felt to fully realise its potential, Boman Irani, President at CREDAI National, said.

There are numerous dilapidated buildings with roughly 50 per cent of population still residing in the slums or old, dilapidated buildings, he added. Irani said there is a need to course correct certain aspects from a regulatory and taxation standpoint, which will boost demand-supply for such projects in the long run.