The recent GST Council meeting has heralded good news for landowners. By making it easier for landowners to avail goods and services tax credit, the council has addressed their cash flow concerns, which in turn could potentially lower home prices for buyers.
The council has suggested to allow credit to landowners in joint development agreements even before the completion certificate is received. In joint development agreements, the landowner gives the development rights of his land to the developer for construction of project. In exchange, the landowner gets a certain number of flats in the project.
While the transaction is taxable on the date of exchange itself, the time to pay GST on it is the date of completion or first occupation of the project. It’s a case where GST liability gets triggered earlier but payment is required by law to be made at a later date.
As an illustration, let’s say:
In 2019- Landowner transfers his development rights to a developer for construction of project. In exchange, the developer earmarks 30 flats in the building for the owner simultaneously. The GST liability is sparked at this stage. But no payment is made to the government since no completion certificate is received.
In 2020- The landowner sells his share of flats to homebuyers. On this sale transaction of an under-construction flat, GST is applicable. But he has no input tax credit to offset against this output tax liability, as till this time the developer has not deposited the GST with the government.
In 2022-The project is completed. The developer makes the payment of GST, enabling the landowner to claim credit of the same. The same credit which should’ve been ideally available to the landowner in 2020.
The difficulty is the law requires the developer to deposit GST at the time the completion certificate in respect of the project is received, Ranjeet Mahtani, partner at Dhruva Advisors said. Till the time developer pays GST, the landowner cannot take credit to offset his tax outgo arising from sale of flats to homebuyers, Mahtani said.
This led to two issues:
One, it resulted in tax blockages and working capital issues.
