Gujarat Authority For Advance Ruling Holds That One Time Premium Received On Allotment Of Completed Commercial Units/Buildings Attracts 18% GST 

The Gujarat Authority for Advance Ruling (AAR) has recently ruled that a one-time premium received by a real estate developer on allotment of completed commercial units or buildings is a taxable supply and attracts 18% GST. This ruling has significant implications for the real estate industry, particularly developers who lease commercial units on a long-term basis. 

The ruling was made in response to an application from a real estate developer engaged in the construction of immovable properties. The developer wished to allot developed units to prospective buyers on a long-term lease basis for a period of 90 years. The developer had already received bookings for certain units before getting BU permission and had charged GST at the applicable rate on the entire amount of the consideration received for the bookings done before BU permission. 

The developer sought an advance ruling on whether the one-time premium received on allotment of a completed building would be treated as a taxable supply or not. The developer contended that since this is a sale of a building wherein consideration has been received after the issuance of a completion certificate, in terms of S. No. 5 of Schedule III, the transaction shall be treated neither as a supply of goods nor a supply of service. 

However, the AAR held that the lease of a plot for 90 years by the developer is not a “sale of land,” but a lease, and therefore does not fall within the ambit of clause 5 of Schedule III of the CGST Act, 2017. Hence, the activity of leasing commercial units on payment of a one-time lease premium and an annual premium is a ‘supply’ falling within the ambit of section 7(1) of the CGST Act, 2017. 

This ruling has significant implications for the real estate industry, particularly developers who lease commercial units on a long-term basis. Developers will now have to account for the 18% GST on the one-time premium received on allotment of completed commercial units or buildings. This will likely increase the cost of leasing commercial units for prospective buyers, as developers may pass on the increased cost of GST to buyers. 

Furthermore, developers may need to re-evaluate their pricing strategies and consider whether to absorb the cost of GST or pass it on to buyers. This may impact the competitiveness of their offerings and could potentially lead to a decrease in demand for commercial units. 

The ruling also highlights the need for developers to be mindful of their tax obligations and seek professional advice to ensure compliance with GST regulations. Failure to comply with GST regulations could result in penalties and legal action, which could have serious consequences for developers.