The Telangana High Court has upheld the imposition of Goods and Services Tax (GST) on the transfer of development rights within joint development agreements. This ruling, dismissing a challenge from a prominent real estate developer, is expected to trigger significant shifts in the cost dynamics of redevelopment projects across India’s major property markets.
The case centred on whether the 18% GST applied to the value of development rights effectively equates to taxation on land sales. The petitioner argued that such transfers should not be taxed under GST as they are analogous to land sales, which are exempt from GST in favour of stamp duty. However, the court upheld the tax imposition, which could substantially alter the feasibility of redevelopment initiatives, particularly in high-density urban centres like Mumbai, Pune, Bengaluru, Hyderabad, and Kolkata. The impact of this ruling is likely to be profound. With Mumbai facing acute land scarcity and high property prices, redevelopment projects have become a critical component of its property market.
The 18% GST levy could render numerous redevelopment projects economically unviable, straining both landowners and developers. In Mumbai alone, around 19,000 properties are pending redevelopment, underscoring the sector’s reliance on such projects. The ruling has raised concerns within the real estate industry. The Confederation of Real Estate Developers’ Associations of India (CREDAI) has voiced its apprehensions to the Ministry of Finance, highlighting that the new tax structure could jeopardise the viability of redevelopment projects, particularly those involving the construction of rehabilitation apartments provided free of cost to existing occupants. Real estate experts suggest that this decision may prompt further appeals to the Supreme Court. The industry remains in flux as stakeholders await potential clarifications or amendments to the GST framework that could impact redevelopment projects nationwide. The ruling marks a pivotal moment for the real estate sector, highlighting the need for clarity and potential reform in tax regulations governing redevelopment projects.
