Funds for tenants in redevelopment plan to attract GST
In its recent order, the Authority for Advance Rulings (Maharashtra State) has held that compensation received by a tenant, covered by a redevelopment plan, for alternative accommodation during construction and any additional compensation for delayed possession of new premises will be subject to GST. The GST at 18% will have to be borne by the developer. This ruling may prompt developers to factor in tax cost and offer lower compensation.
Based strictly on this ruling, every tenant participating in a redevelopment plan will have to register under GST and file returns. Also, tenants will indirectly face a financial impact. Yusuf Hakim, indirect-tax partner at CNK & Associates, a chartered accountants' firm, explains: "The developer will get an input tax credit (ITC). However, there will typically be a time lag between actual GST burden borne by the developer (at the time of paying compensation) and the stage where the developer can claim ITC. Input tax credit means reducing the taxes paid on inputs from taxes to be paid on output. Thus, developers may negotiate a lower compensation pay-out."
Tax experts hold that based on GST provisions, parties to a redevelopment plan like the developer and tenants can take a view contrary to this ruling. But, tax officials say AAR rulings have a persuasive effect in other similar cases.