The Maharashtra Authority of Advance Ruling (AAR) has ruled that Goods and Service Tax (GST) is payable on free area, amenities & charges under redevelopment deals.
The bench of D. P. Gojamgunde, Joint Commissioner of State Tax, (Member) and Priya Jadhav, Joint Commissioner of Central Tax, (Member) has observed that the Applicant has received Transfer of Development Rights (TDR), and in return he has supplied a constructed flats free of cost along with other benefits. Consequently, this transaction squarely falls under “exchange” as mentioned in Section 7 (1) (a) of MGST Act and thus within the purview of Scope of Supply under MGST Act, 2017.
The bench clarified that the supply of free residential units by the developer to the society members is not truly free, as it is in exchange for the transfer of development rights (TDR/FSI) provided by the society. This transaction is treated as an exchange/barter transaction under GST, and both sides of the transaction are liable to GST.
Therefore the supply of residential units to the society members is considered a supply of construction services under Section 7 of the CGST Act, as it involves the construction of a building for the society in exchange for TDR/FSI. As per the relevant GST notifications, the developer is liable to pay GST on this supply at the effective rate of 1% (for affordable housing) or 5% (for non-affordable housing) without Input Tax Credit for projects commencing on or after April 1, 2019. The value of this supply is determined as per the open market value of similar apartments sold to independent buyers nearest to the date of the development agreement.
The applicant is engaged in the business of real estate Re-development of old buildings. The company has been awarded a Re-development project of a housing society. The old society is a fully residential building having 22 members. The existing members occupy an area ranging from 260 Sq. Ft. to 680 Sq. Ft. carpet. The Applicant has entered into a Development Agreement.
The applicant sought clarity on whether GST would be applicable on various components offered free of cost to existing society members, including Area in lieu of their existing flats, Additional area, Amenities, Parking spaces, and Stamp duty and registration charges borne by the developer.
The second question addressed whether GST is applicable on monetary payments made to members as part of the redevelopment agreement, including Rent and brokerage for alternate accommodation, Shifting charges and Corpus paid to members and to the society.
Finally, the applicant sought to determine the taxable value for GST purposes on the free supply of flats, additional area, and amenities to existing members.
The AAR ruled that GST is payable on all these components, even if they are provided free of cost, as they form part of the consideration for development rights transferred to the developer.
The AAR stated that monetary payments made to members as part of the redevelopment agreement do not amount to “supply of services” by the members to the developer and hence are not liable to GST. The AAR noted that these form part of the consideration paid by the developer to acquire development rights, along with the free units.
The value of supply shall be equivalent to the value of similar apartments sold by the developer to independent buyers closest to the date when development rights are transferred.
Ruling Details
Applicant’s Name: M/s. SHARDA VASTU NIRMITEE PRIVATE LIMITED
Ruling Date: 30/04/2025
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Mariya is the Senior Editor at Juris Hour. She has 5+ years of experience on covering tax litigation stories from the Supreme Court, High Courts and various tribunals including CESTAT, ITAT, NCLAT, NCLT, etc. Mariya graduated from MLSU Law College, Udaipur (Raj.) with B.A.LL.B. and also holds an LL.M. She started as a freelance tax reporter in the leading online legal news companies like LiveLaw & Taxscan.
