Redevelopment & GST: Do You Really Need to Pay for Extra Space?

Redevelopment of housing societies often brings excitement for upgraded homes, but it also raises several financial and legal questions. One of the most common concerns faced by members is whether Goods and Services Tax (GST) applies to the extra space offered by developers. A recent case in Mumbai sheds light on this issue, where a member was offered additional space during redevelopment and asked to pay GST on it. Let’s break it down point by point.

1. Extra Space in Redevelopment

In one instance, a member was offered a redeveloped flat of 850 sq ft against their entitlement of 800 sq ft. The developer demanded payment for the additional 50 sq ft, including GST. This triggered a common question among residents: Is GST really applicable in such cases?

2. Entitled Area vs. Purchased Area

The rule is clear: entitled area under redevelopment is exempt from GST. However, when members opt for any extra area beyond their entitlement, it is considered a purchase transaction. Therefore, GST becomes legally applicable on the additional space bought from the developer.

3. Legal Clarification on GST

Legal expert Sharmila Ranade explained that GST applies only to the extra purchased portion. The entitled area is received free of tax, but the extra area is treated as a sale, and hence, taxable. This clarification helps members understand why developers often add GST to the extra square footage.

4. Separate Agreement for Extra Space

To ensure transparency, developers usually draft a separate agreement for the additional area. This agreement highlights the cost of extra space, GST charges, and other conditions. Such documentation not only helps in compliance but also protects both members and societies from future disputes.

5. Role of Society Approval

Before filing redevelopment plans with the authorities, the proposal must be approved by the society’s general body. Once approved, members are bound by the agreed terms. This makes it crucial for residents to carefully review proposals before granting approval.

6. Importance of Clear Agreements

Experts emphasize that all agreements should clearly mention details of taxes, GST, and other financial clauses. Whether it’s the redevelopment proposal, development agreement, or permanent alternate accommodation agreement, clear documentation safeguards members from unexpected liabilities.

7. Avoiding Future Disputes

Redevelopment can create grey areas if communication is poor. To prevent conflicts, societies, developers, and members must ensure proper documentation, transparent communication, and timely clarifications. This helps maintain trust and avoids disputes later.

Conclusion

Redevelopment is meant to upgrade living standards, but members must be aware of the financial and legal implications that come with it. The case of GST on extra space highlights the importance of clear agreements, society approvals, and transparent communication. With proper awareness and expert guidance, housing societies can ensure smooth redevelopment while avoiding unnecessary disputes.

source Link :  Mumbai Housing Society Queries: Redevelopment & GST; Do You Really Need To Pay On Extra Space? Find Out Here