Real estate companies in India have approached the finance ministry seeking intervention regarding goods and services tax (GST) notices. The notices were served on 27 prominent developers who use brand names within special purpose vehicles (SPVs) set up for project implementation. The tax authorities have also sent out notices for non-payment of tax on corporate guarantees provided by flagship companies to their subsidiaries, which attracts an 18% GST. This move has raised concerns among realty players as they believe that the imposition of GST will inflate project costs and significantly impact profit margins. The companies who have received the notices have individually approached the finance ministry for support.
Industry Players Highlight Concerns and Seek Clarity from Finance Ministry
Representations made by the real estate industry to the finance ministry highlight that the SPV model plays a crucial role in forming joint ventures for various projects. The industry seeks clarity on this matter and it is likely to be referred to the group of ministers on real estate during the next GST council meeting. The Directorate General of GST Intelligence has confirmed a tax liability of approximately ₹3,500 crore and has recovered ₹1,800 crore so far. According to officials, the use of brand names and logos by SPVs falls under the category of services and is subject to an 18% GST. The detection of tax evasion of ₹3,500 crore in the realty sector alone has raised concerns among authorities. This move by tax authorities has prompted real estate companies to express their worries to the finance ministry who have promised to investigate and address the issue. However, no specific names of players have been disclosed by the senior official.
Impact on Real Estate Sector
The imposition of GST on SPVs and corporate guarantees could have significant implications for the real estate industry. Developers fear that this move would artificially increase project costs as a result of the additional taxation. Higher costs, in turn, could put pressure on profit margins and affect the financial viability of projects. Considering the current market scenario and constraints faced by the real estate sector, this additional burden could further slow down its recovery and growth.
Looking Ahead
Real estate companies are looking for a resolution to this issue to ensure the smooth functioning of their projects. The industry is hopeful that the finance ministry, after examining the concerns raised, will provide suitable relief and clarity on the matter. It remains to be seen how the finance ministry and the GST council address the challenges faced by the real estate sector regarding GST notices and taxation on SPVs and corporate guarantees. Stay tuned for updates on this crucial development in the Indian real estate sector. Read More: – ETRealty.com: Real estate companies approach finance ministry over GST notices
