GST on purchase of plot

The spread of COVID-19 has put forward the need of own and spacious houses, this indeed has shot up the demand for plots and villas. But amid this the recent order of Gujarat AAR (advance ruling authority) has increased the problems of buyers as for now they will be obliged to pay the dual charges of registration and GST.

Earlier the rates applicable on real estate were as follows except in case of sale of completed or old properties:

According to the judgement, the act of sale of developed plots will be considered below the clause of “construction of a complex intended or sale to a buyer”. Here developed plots means the plots equipped with primary facilities of drainage, water, roads, land levelling and electricity lines etc. as per the guidelines of development authorities such as Jila Panchayat. These additions will be considered as supply of service.  This decision is in line with the view taken by Supreme Court in the case of M/s Narne Construction P LTD in 2013.

Earlier the sale of plots did not attract the GST under Schedule III of CGST Act, 2017, but after this judgement the sale of developed plots is covered under “construction services” and hence liable to GST rates. Further clarified by the former authority now the transactions solely advocating the transfer of title or transfer of ownership of land, which is immovable property or earth, will be exempted from the GST levy. According the AAR, the sale of developed plots is a scheme which involves making the land into a structure after obtaining necessary plan approval from the development authority, collecting individual sites. Further, such plots are developed after levelling of land, construction of boundary wall and roads, laying of underground cables, water pipelines and sewage lines beside from the other developments such as landscaped gardens, drainage system, water harvesting system, demarcation of individual plots and construction of overhead tanks, etc.

Also it is observed that the vendor of such plots often charges the rates on super built up basis rather than on actual measure of the plot. The super built up area means the area used for common amenities, roads, water storage tank and alternative demand on proportionate basis. Thus, the seller charges not only for plot but also the facilities provided.

Thus, this order will bring the chaos and a slight downfall in the real estate sector as the seller or developers have to rethink about their cost and pricing strategies.