AHMEDABAD: According to experts, the Gujarat High Court’s order that the actual worth of land be deducted before levying Goods and Services Tax (GST) on under-construction flats, will lower purchasers’ tax bills if the legal contract clearly identifies the land value.
Currently, GST is paid on the sale of under-construction flats/units, with the total value of the flat or unit (including the price of the underlying land) being taxed after an arbitrary deduction of 1/3 of the value of the flat or unit going towards land, regardless of the actual value of the land. The true value of land in metro cities is substantially higher than the one-third of value of a flat, and also this one-third reduction in value is arbitrary in nature because it is applied universally regardless of the area, size, or location of land.
The court has ruled that levying tax on the land in this manner is beyond the legislative power of the central government. Henceforth, whenever a sale agreement clearly states the price of the land, this Gujarat HC ruling will apply. This will lower the tax burden on the buyers of under-construction flats.
According to Avinash Poddar, Gujarat High Court Advocate, who was also the arguing counsel in the case, the government is expected to issue Valuation Rules, as it did in the service tax system. This ruling will be particularly helpful in the metro cities where land value is higher than construction cost when compared to other cities and towns in India. In such cases, the taxpayer will have to pay considerably lower GST if they can establish the actual value of land / undivided share of land to be reduced from the purchase amount.