GST Applicability

[Ethirajan Parthasarathy]

“A”, real estate company enters into agreement with land owner for purchase of land for ₹ 50L and pays advance of say 30 Lacs. Shortly the company finds a buyer for 60 lacs.

Sale deed is directly executed by the land owner to actual buyer with the with 'A' as consenting party for ₹ 60Lacs.

The buyer pays 20Lacs to land owner and 40 lacs to the real estate company.

My queries are

1. Is company liable for GST since what is transferred is not land per se, but only right in the land

2. If the company is liable for GST, is it on 60 lacs or on 10 lacs, being the margin money

3. For purpose of income tax, whether his turnover is 10lacs or 60 lacs

[Spudarjunan S]

Dear Sir,

Required clarification whether are you transferring the ownership of the land or only a part of right to use / develop the land. Ownership is nothing but a bundle of rights. If the ownership is being transferred, then it can be covered within III schedule of CGST.

If the transfer is happening at the stage of agreement to sell, then the issue arises is it a service or goods. Agreement to sell doesn't have any right over the property it is just a privilege to be the the purchaser. Here it is may be argued still such right can be related to the immovable property and no GST. Further, there should be a positive action for supply of service - Bai Mamubai Trust (Bom HC).

AI Summary

GST on transfer of land rights: taxability depends on whether ownership or only limited contractual rights are conveyed. Whether GST applies hinges on whether the developer effects a transfer of ownership or only conveys limited rights/contractual privilege. A transfer of ownership is more likely to be taxable under GST, whereas an 'agreement to sell' that confers only a privilege may not attract GST. If GST applies, the taxable base depends on whether the developer's role is a transfer of property (entire consideration) or a service/brokerage (taxable on the developer's margin). Income-tax treatment likewise depends on whether turnover is characterized as full sale consideration or only the margin earned.