Developers told to pay service tax on redeveloped housing projects
Publish on : 2019-03-22 11:04:33
When a real estate developer redevelops a society and delivers apartments to the original residents free of cost,
is it taxable? The tax department thinks it is.
In what is set to create problems for real estate developers, especially those that have undertaken
redevelopment projects, the indirect tax department has issued about 400 notices in the past few months for non-
payment of service tax on the delivery of redeveloped houses free of cost, people in the know said.
Tax experts say that the tax-ability of redevelopment projects, especially houses delivered to original residents
after redeveloping, is set to impact developers in places like Mumbai. The tax department wants to levy tax on
the under-construction service to the original residents, in addition to the value of the development right,” said
Abhishek A Rastogi, partner at Khaitan Co.
The tax demand is for years prior to the introduction of the goods and services tax. All indirect taxes were
subsumed in GST with effect from July 2017.
In a normal redevelopment transaction, rights to develop a property are given to the real estate developer. The
developer redevelops the society and delivers larger apartments to the society members and sells the remaining
houses constructed on the same area to new buyers. The tax department argues that this is a barter deal
between the society members and developers, and tax must be paid on it.
Source - Economic Times