Analyzing the Impact of RERA Collections Exemption in the 53rd GST Council Meeting

Introduction

In a significant move to address the long-standing demands of the real estate sector, the Goods and Services Tax (GST) Council, during its 53rd meeting, announced the exemption of statutory collections made by the Real Estate Regulatory Authority (RERA) from GST.^[1] This exemption, which aligns with entry 4 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, is expected to have far-reaching implications for real estate developers, agents, homebuyers, and the broader regulatory framework. The decision to exempt RERA collections has been in demand for a long time. Stakeholders in real estate were often served notices for payment of GST on statutory levies, which they argue should not attract GST. For example, the indirect tax department has demanded GST on license fees paid by companies for government schemes such as Advance Authorization and Export Promotion for Capital Goods (EPCG).^[2] They contend that this increases the financial burden on the already stressed real estate sector. There was ambiguity regarding GST on statutory fees collected by RERA, prompting frequent requests for clarification and relaxation. The recent GST exemption for RERA collections might set a precedent for other sectors and regulatory authorities to seek similar exemptions, as other statutory levies, such as license fees for telecom spectrum, and mining activities remain subject to GST.

Understanding the Exemption

Entry 4 of Notification No. 12/2017-Central Tax (Rate) provides an exemption to services provided by the Central Government, State Government, Union territory, or local authority where the consideration for such services does not exceed Rs. 5,000. RERA, established under the Real Estate (Regulation and Development) Act, 2016, collects various fees and charges from real estate developers and agents. These collections, being statutory in nature, are mandated by law and do not constitute commercial transactions.

The GST Council's decision to exempt RERA's statutory collections underscores RERA's role as a regulatory body rather than a commercial entity. This aligns with the broader intent of the GST framework to exclude statutory payments from the GST purview, thereby preventing additional tax burdens on regulated entities.

Clarification via Circular No. 228/22/2024-GST

In the exercise of the powers conferred under section 168(1) of the Central Goods and Services Tax Act, 2017, and on the recommendations of the 53rd GST Council in its meeting held on 22nd

June 2024, the Ministry of Finance Department of Revenue issued clarifications. The ministry clarified that RERA, established under the Real Estate (Regulation and Development) Act, of 2016, performs regulatory functions for real estate development and construction. RERA is classified as a 'governmental authority' and falls under the exemption scope of entry at Sl. No. 4 of notification No. 12/2017-CT(R) dated 28.06.2017. Thus, as recommended by the 53rd GST Council, it is hereby clarified that statutory collections made by RERA are covered under the Sl. No. 4 of notification No. 12/2017-CT(R) dated 28.06.2017.

Implications for Real Estate Developers and Agents

1. Reduction in Compliance Burden: Real estate developers and agents frequently make payments to RERA, including registration fees, project extension fees, and penalties for non-compliance. Exempting these payments from GST reduces their compliance burden, simplifying accounting processes and reducing administrative overheads.
2. Cost Savings: The exemption directly translates to cost savings for developers and agents, reducing their overall financial outlay towards regulatory compliance without the added GST. This can lead to more competitive project pricing and potentially lower costs for end consumers.
3. Encouragement for Regulatory Compliance: The financial relief provided by the GST exemption serves as an incentive for developers and agents to comply with RERA regulations. This move fosters greater adherence to regulatory requirements, promoting a more transparent and accountable real estate sector.

Impact on RERA Operations

1. Streamlined Revenue Collection: RERA authorities across states can now collect statutory fees without the need to manage GST implications. This simplification allows RERA to focus on its primary mandate of regulating and promoting the real estate sector.
2. Enhanced Regulatory Efficiency: With the administrative burden of GST compliance removed, RERA can allocate more resources toward monitoring and enforcement activities. This can result in more effective regulation of the real estate sector, ensuring better protection for homebuyers and promoting fair practices among developers.

Benefits for Homebuyers

1. Potential Reduction in Project Costs: The exemption of GST on RERA collections can reduce costs for real estate developers, who may pass on these savings to homebuyers. Reduced regulatory costs can contribute to more affordable housing options, benefiting potential homeowners.
2. Increased Transparency and Accountability: The GST exemption encourages developers to comply with RERA regulations, fostering greater project approvals and transparency in timelines. Homebuyers can benefit from increased accountability in the real estate sector, reducing the risk of project delays and ensuring timely delivery of properties.
3. Improved Regulatory Environment: A more efficient and well-funded RERA can better protect the interests of homebuyers. The exemption allows RERA to focus on its regulatory duties without the distraction of managing GST collections, resulting in a more robust regulatory environment.

Challenges and Considerations

1. Clarification on Scope: While the exemption is a positive step, further clarification may be needed on the specific types of collections covered. RERA collects various fees, and a clear definition of statutory collections is essential to avoid ambiguity and ensure consistent exemption application.
2. Monitoring and Enforcement: Ensuring the exemption is not misused requires robust monitoring and enforcement mechanisms. Authorities must remain vigilant to prevent attempts to circumvent the exemption by misclassifying commercial transactions as statutory collections.
3. State-Level Variations: RERA operates at the state level, and the implementation of the exemption may vary across states. Ensuring uniform exemption application across different jurisdictions is crucial to maintaining consistency and fairness in the real estate sector.
4. Other Tax Obligations in the Real Estate Sector: Despite the GST exemption on RERA collections, the real estate sector in India remains subject to various other taxes, including:
5. Stamp Duty
6. Income Tax
7. Property Tax
8. Capital Gains Tax
9. Development Charges
10. Labor Cess
11. GST on Construction Services
12. TDS on Property Transactions
13. Municipal Taxes
14. Registration Fees
15. Environmental Clearance Fees

Conclusion

The GST exemption on statutory collections made by RERA, as announced in the 53rd GST Council Meeting, represents a significant development for the real estate sector. It reduces the compliance burden on developers, encourages regulatory compliance, and promotes a more transparent and accountable industry. Homebuyers stand to benefit from potential cost savings and a more robust regulatory environment. While the decision is a positive step, careful implementation and monitoring are essential to fully realize its intended benefits. The GST Council's move aligns with the broader goal of fostering a transparent and efficient real estate sector, ultimately contributing to the industry's growth and development. This decision paves the way for exemption to other institutions performing statutory functions. It might also set a precedent for other sectors and regulatory authorities to seek similar exemptions, and other statutory levies, such as license fees for telecom spectrum, and mining activities which still remain subject to GST.