GST reduction on most popular places won’t follow to previous instances – Trade Information

The GST Council’s clarification on the taxing process of Preferential Location Charges (PLC) may have brought relief to homebuyers, but questions of its retrospective applicability still remains, as past cases involving Rs 7,000-8000 crore are stuck under litigation in courts, say industry sources.

On Monday, the Council issued a clarification on the tax treatment of PLCs. It said that the PLC – a charge which the developer takes from the buyer for allocating a preferred location for a particular unit – paid along with the price for property construction forms a part of the same supply, i.e, construction services and thus, should be liable at the same rate at which construction services are taxed.

Earlier, GST authorities viewed PLC as a separate service chargeable to an 18% GST rate. With the recent clarification, a lower GST rate of 5% or 12% will now apply to PLC, along with abatement benefits. This change is expected to reduce costs for homebuyers and developers by 6% to 13% and provide greater certainty to developers and builders, ensuring that they are not unfairly taxed on components of the supply that should be considered part of the overall service, say tax experts. 

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But as such, the amendment seems prospective, and its retrospectivity is not yet clear. “Logically, the government should also allow the industry or the consumers to claim a refund of GST paid at higher rate in the past and a procedure should be laid down for it,” said Pratik Jain, partner, PwC India. 

In case the government makes the amendment retrospective, the higher taxes paid at the 18% rate, may be reimbursed to homebuyers, say experts. 

Onkar Sharma, partner at Khaitan & Co, said: “This recommendation could potentially lead to more streamlined accounting practices and reduce disputes between tax authorities and the construction industry, ultimately fostering a more favourable business environment.”