In big boost to realty sector, Gujarat HC provides GST relief to homebuyers

NEW DELHI: In a major relief to the home buyers, the Gujarat High Court on Friday said that actual value of land should be deducted to arrive at GST on cost of construction of a flat. As per the current GST rules, 1/3rd of total amount charged is deducted to arrive at the cost of construction for the purpose of calculation of tax.

GST is not charged on the sale of land and 1/3rd of the total amount is deemed as value of land, and hence deducted from overall cost of construction of a flat or bungalow. The Gujarat high court in its order said that the mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules.

The dispute of tax liability arises in cases where land and construction both are the part of transaction. 
The court called the mandatory fixing of land value at 1/3rd of the cost of construction as arbitrary which has led to a situation where the measure of tax imposed has no link with the charge of tax which is on supply of construction service.

“This is a big win for the real estate sector against the imposition of GST on arbitrarily computed taxable value which is inclusive of the land parcel,” says Rajat Mohan, a New Delhi-based Chartered accountant. 
Abhishek Rastogi, partner in law firm Khaitan & co, says,

“While similar issues are pending in different states, Gujarat High Court decision will set the trend and the excess tax paid would be refunded at some stage, perhaps after the matter is completely settled by the apex court.” It is to be noted here that GST is applicable only on under-construction properties. GST is not charged on a completed project.