The indirect tax department has issued about 400 notices in the past few months for non-payment of service tax on the delivery of redeveloped houses free of cost. Tax experts say that the taxability of redevelopment projects, especially houses delivered to original residents after redeveloping, is set to impact developers in places like Mumbai.
Abhishek A Rastogi, partner at Khaitan & Co. Said that the tax department wants to levy tax on the under-construction service to the original residents, in addition to the value of the development right.
The tax demand is for years prior to the introduction of the goods and services tax. In a normal redevelopment transaction, rights to develop a property are given to the real estate developer. The developer redevelops the society and delivers larger apartments to the society members and sells the remaining houses constructed on the same area to new buyers. The tax department argues that this is a barter deal between the society members and developers, and tax must be paid on it.
In June last year, real estate developers filed a writ petition in the Bombay High Court challenging a notification that made the transfer of development rights from the land owner to the developer taxable.
