GST, an inseparable part of our lives: Now applicable on purchasing plots too

A major setback might be knocking at the doors of the real estate sector. Recently, the Gujarat Advance Ruling Authority (AAR) passed an order which says that Goods and Services is Tax (GST) will be applicable on sale of plots under conditions such as if the seller is providing amenities like Advance Ruling Authority (AAR).

The activity of sale of ‘developed’ plots would be covered under the clause ‘construction of a complex intended for sale to a buyer’ says Gujarat AAR.

Thus it claims that sale of developed plots fall under construction services and GST will be applicable for such plot sales.

GST was never applicable on selling plots and buyers only had to pay registration charges. This new change will require buyers to pay both GST and registration charges for a plot.

“This ruling is not in line with the tax position taken under current tax laws and erstwhile tax laws, which will lead to chaos in the real estate industry,” Rajat Mohan, partner, AMRG & Associates.

This order was issued in the light of a case in which an owner of the land had developed the basic infrastructure and amenities like drainage, water and electricity lines and then sold the ‘developed’ land as a plot.

According to AAR, this scheme aims at forming the land into a layout after necessary approvals from the development authority and collection of required permissions followed by the completing the layout comprising individual sites.

Such plots are developed after a series of activities such as levelling of land, construction of boundary wall and roads, laying of underground cables, water pipelines and sewerage lines apart from other developments such as landscaped gardens, drainage system, water harvesting system, demarcation of individual plots and construction of overhead tanks, etc.

AAR has also made an observation which brings out facts on how the sellers of such plots charge sky high rates than the actual measure of the plot. 

These areas include the area used for common amenities, roads, water tanks and other infrastructure on a proportionate basis.

Thus, it argues that in effect the seller is collecting charges towards the land as well as the common amenities, roads, water tank and other infrastructure on a proportionate basis. In other words, these are an intrinsic part of the plot allotted to the buyer.

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