18% GST applicable on sale of land post development activity: Madhya Pradesh AAAR

[] The MP AAAR ruling will tremendously increase the cost of land purchases.

Ina recent order that would have significant financial implications on sale of land, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) has said land sold after doing development activity will attract 18% Goods and Services Tax (GST).

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In its order the MP AAAR has distinguished a barren land from a developed land, stating that transactions involving the former would have no GST implications.

On the other hand, any land parcel that is sold after undertaking development activities such as providing water line, electricity supply and sanitation works would be considered developed land and attract GST at 18% rate. Eventually, this would result in the buyer shelling out more for land and plot acquisitions.
While giving its ruling the MP AAAR set aside an earlier order of the MP Authority for Advance Ruling that said land sale was outside the purview of the GST. Know that a listing in Schedule-III of the CGST Act establishes that the sale of land and the sale of buildings will be treated neither as supply of goods nor as supply of services.

In 2021, the Gujarat Authority for Advance Rulings had also specified that the sale of developed plot was a ‘service’ and thus, taxable under the GST regime. While delivering its judgment on a case of a Surat-based applicant, the Gujarat AAR said that construction of plotted developments or similar structures fall under Schedule-II Para 5 Clause (b) of the Central Goods and Services Tax (CGST) Act.

Schedule-III of the CGST Act also states that the sale of land does not attract the GST, only if the transaction relates to the transfer of ownership of land exclusively. Schedule-II, Clause 5(b) of the CGST Act states that construction of any complex, building or civil structure meant for further sale is considered as supply of service, and would thus attract the GST.

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In June 2020, the Gujarat AAR said that providing amenities like water, electricity and other primary facilities as part of a plot sale constitutes rendering of services, and, therefore, attracts the services tax under the GST. It also clarified that the sale of ‘developed plots’ with primary amenities is not equivalent to the ‘sale of land’.

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Category: Lifestyle

Debora Berti

Università degli Studi di Firenze, IT

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