Why does developed land sold as plots attract GST?

The Authority of Advance Ruling (AAR) has declared that the sale of developed plots will attract Goods and Services Tax (GST). The sale price would include the cost of the land to be sold as well as the price of amenities on a pro-rata basis. Here’s why it attracts GST.

Usually, the sale of land does not attract Goods and Services Tax (GST) as it does not come under any of the major taxable categories – supply of goods or services, or monetary or non-monetary consideration made in the course or furtherance of a business. However, that changes when it is with regard to developed plots that come with added amenities.

As per the latest ruling by Authority of Advance Ruling (AAR), GST would be levied on the sale of land for which primary amenities such as drainage, water and electricity supply have been included by the real estate developer. Let us understand the intricacies of how the sale of such land would be taxed:

Supply of services

Usually, the sale of land does not attract GST because such a transaction is neither treated as the supply of goods nor the supply of services under Schedule III of the Central Goods and Services Tax Act (CGST), 2017. This land would only attract a stamp duty to be paid to the registrar, while being identified as immovable property.

The AAR clarifies that if the act of sale of land is exclusively dealing with the transfer of title or the transfer of ownership of land as per Serial No. 5, Schedule III of CGST Act, 2017, it lies outside the purview of taxable services under GST.

Mukesh Jain, real estate lawyer and founder, Mukesh Jain & Associates

Under Section 2 (119) of the CGST Act, 2017, the alteration or commissioning of any immovable property wherein there is a transfer of goods (such as construction material) is covered under a work contract which attracts GST. This condition is satisfied in case of amenities developed on a plot as a work contract is required for the construction of these amenities, and therefore this calls for taxation. With the new ruling, sale of these plots would also attract GST.

The sale of a developed plot, however, would be counted as a ‘supply of a service’, making it eligible to be taxed under the GST regime, mainly due to the attached amenities being offered by the real estate developer. This sale is counted as a ‘constructed service’ as per the CGST Act, 2017. Let us understand the qualification of this type of service.

Constructed services clause

The activity of the sale of a developed plot with amenities qualifies as a ‘constructed service’ under the ‘construction of a complex intended for sale to a buyer’ clause of the CGST Act, 2017. As per the Plan Passing Authority (PPA), such a qualification is valid if the seller of the land can prove that it lies outside the municipal area of the town on which he foresees some planned business activity.

The Zila Panchayat of an area outside municipal limits mandates that the sale of a developed plot must be made along with developed amenities such as sewerage and drainage line, waterline, electricity line, street lights etc. and that the land must be levelled for road construction. If the land must go through some form of construction before the sale, it would qualify for taxation because of work contracts, which would have to be issued for this construction.

The sale of developed land is not the same as the sale of land, as the latter does not involve the alteration of land and as per Section 2 (119) of the CGST Act, 2017, does not attract any GST.

As a simple rule of thumb, just as the sale of a building which has been issued a completion certificate does not attract GST, the sale of undeveloped land does not either. Any transaction for an under-construction building, i.e., without a completion certificate, attracts GST and so does a piece of land where construction takes place to accommodate amenities.

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