GST on Hardship Compensation, Rent received from Developer

[Yogesh Ashar]

Dear All

I have a query with regards to GST on receipt of Hardship compensation, rent and other receipts received by a residential flat owner from a builder on redevelopment of society premises. Whether GST would be applicable for the receipts from the builder to the member. if yes then under what entry and the rate for same. whether a plea can be raised that the money received is not in the nature of furtherance of business hence no supply. Kindly guide.

Thanks in advance

CA Yogesh Ashar

[Amit Agrawal]

It is risky to look these receipts from developer by individual residential flat owner - in isolation - to determine gst liability.

One needs to look into entire arrangement of redevelopment of society (as there are many different ways such arrangement can be worked out) by holistic reading of agreement/s entered into, between builder, concerned society and its member-constituents before addressing issues raised in the subject query.

For just example/s among many possibilities: Subject receipts can be in nature of 'liquidated damages' not liable to gst. They also can be part of 'consideration' paid by the builder towards overall arrangement agreed between all concerned parties and thereby, liable to pay GST.

The plea that 'these receipts are not in the nature of furtherance of business hence no supply' cannot be looked into in-isolation, specially considering very broad definition of 'business' u/s 2 (17) of the CGST Act, 2017.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

There was a recent decision in the case of RCM on renting of residential premises for personal use. It was held by the High Court that it would not be liable to GST as it is for personal use.

Taking cue from this decision whether a view can be taken that the amounts received from the builder is in relation to personal residential stay of the person and thereby not liable to GST.

In this regard the 20lakhs turnover also should be looked into.

AI Summary

GST on developer payments: classification as consideration or compensation determines GST liability on redevelopment receipts. Whether developer payments to a residential flat owner on redevelopment are taxable depends on their character: amounts forming part of the agreed consideration in the redevelopment arrangement are likely taxable, whereas amounts characterised as liquidated damages or compensation may not be. Determination requires holistic review of the redevelopment contracts and the parties' arrangement rather than isolated analysis of individual receipts.