GST net widening for real estate companies

THE DIRECTORATE GENERAL of GST Intelligence (DGGI) is understood to be sending notices to various real estate companies, demanding that GST be paid for a clutch of transactions among group companies or joint venture partners. The move is seen as part of a strategy to widen the tax net for the sector.

- RAGHAVENDRA KAMATH & PRIYANSH VERMA

Fees for management services and royalty charged for use of brand names are among the services that the DGGI finds taxable at 18% - the GST slab for most services.

These intra-group and intrajoint venture (JV) transactions are common among large real estate firms, as part of their operational strategies, cash management and JV arrangements. Experts are divided on the legal tenability of the current set of tax demands.

The managing director of a top Mumbai-based real estate company told FE on condition of anonymity:

"In a 50:50 JV (joint venture), many charge 7-8% management fee (for managing construction and approvals). These may be subjected to GST. The DGGI is learnt to be studying it and we may get notices soon."

Such fees, including royalty paid for brands, add up to 12-15% of cost for developers, the source said. Cost of such payments are built into the formation of JVs and the shareholding.