Mum. redevelopment projects, 3 GST sees court cases build-up

18 Sep 2023 CW Team

The redevelopment of cooperative housing societies (CHS) in Mumbai is currently in full swing, but a complex web of issues related to the Goods and Services Tax (GST) within these redevelopment schemes is giving rise to legal disputes. In light of these challenges, appeals are being made to the finance ministry to streamline the tax mechanism and provide clarity for stakeholders.

In typical CHS redevelopment scenarios, members collectively transfer their development rights to a redeveloper. Upon completion of the project, they receive a new flat in exchange for their old one. The redeveloper, in turn, leverages the additional Floor Space Index (FSI) available under redevelopment regulations to construct additional flats for sale in the open market. This enables the builder to recover the cost of rehabilitation, offering new flats free of charge to the original members.

However, redevelopment projects face a triple GST impact, which not only adds to the overall project costs but also affects their viability. The first GST levy, set at 18%, is applied to the transfer of development rights to the builder (redeveloper). Importantly, this levy is contingent on the sale of flats post-acquisition of the project's completion certificate.

The intricate GST framework within redevelopment schemes has led to ambiguity and complications, causing concerns for both developers and housing society members. To address these challenges, stakeholders are urging the finance ministry to establish clear guidelines and a more streamlined tax mechanism that ensures fairness and clarity in these redevelopment projects.

As the redevelopment of cooperative housing societies continues to be a critical aspect of Mumbai's urban landscape, resolving GST-related issues is essential to ensure the sustainability and success of these vital projects.

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