CREDAI-MCHI Hosts Panel on GST Relief for Mumbai Projects

CREDAI-MCHI recently convened an expert panel to decode the implications of the Bombay High Court’s ruling on the application of Goods and Services Tax (GST) in redevelopment projects.

The decision, which came in the case of M/s Shrinivasa Realcon Pvt. Ltd. vs. Deputy Commissioner, Anti-Evasion Branch, has brought much-needed clarity regarding tax liabilities for homeowners and developers involved in redevelopment schemes. The seminar, held at CREDAI-MCHI’s Mumbai office, attracted leading industry experts who provided valuable insights into the practical consequences of the ruling. Notably, the judgment delivered significant relief to homeowners by clarifying that GST does not apply when a developer is hired to carry out redevelopment work, provided there is no transfer of development rights or Floor Space Index (FSI).

The Bombay High Court’s ruling specifically addressed the issue of GST applicability in redevelopment agreements, which had previously created confusion and spurred litigation. The Court ruled that GST is not applicable to such agreements where there is no transfer of TDR or FSI as per Maharashtra’s Unified Development Control and Promotion Regulations (DCPR). This clarification has eased the tax burden on redevelopment projects, which had often been hindered by unclear tax guidelines. The panel at the seminar included Mr. Sunny Bijlani, Joint Secretary at CREDAI-MCHI, Mr. Rohit Jain, Deputy Managing Partner at Economic Laws Practice (ELP), and Mr. Harsh Shah, Partner at ELP. Together, they examined the ruling’s broader implications on the redevelopment sector in Mumbai, a city with one of the highest numbers of dilapidated buildings in the country.

Sunny Bijlani underscored that while the ruling provides some clarity, it also highlights the underlying issues facing Mumbai’s redevelopment projects. “Mumbai’s redevelopment potential is constrained by high approval costs, which are significantly higher than those in other cities. While the ruling has brought relief in terms of GST clarity, Mumbai’s development charges—Rs 55,200 per square metre—remain a major hurdle compared to cities like Pune (Rs 1,800) and Delhi (Rs 5,500). Until we address these stark cost differences, along with regulatory hurdles, many redevelopment projects will continue to face financial viability challenges,” Bijlani noted. He further emphasised that these issues aren’t limited to developers alone but affect a much wider community, particularly residents of aging and unsafe buildings. “By tackling these challenges, we can not only improve the quality of urban infrastructure but also create a safer and more sustainable environment for thousands of residents in dilapidated structures,” Bijlani stated.

Mr. Harsh Shah of ELP also commented on the wider implications of the judgment, clarifying that while it offers some relief, the issue of GST on development rights remains contentious. “The ruling by the Nagpur bench of the Bombay High Court has been misinterpreted by some as an exemption from GST on all redevelopment rights. However, it is crucial to note that the ruling only clarifies that GST on development rights is not applicable under the reverse charge mechanism, and does not eliminate the tax entirely,” Shah explained. Shah cautioned that the current confusion surrounding the GST treatment of development rights has led to numerous legal disputes across the country, with cases pending in courts in Bombay, Delhi, Gujarat, and Karnataka. “Until a larger bench or the GST Council provides a definitive verdict, developers will continue to face legal and financial uncertainty,” Shah added.

Rohit Jain, Deputy Managing Partner at ELP, highlighted the cascading impact of multiple layers of GST on redevelopment projects, a major obstacle to achieving affordable housing. “Currently, developers face up to four layers of GST: 5% on sales to customers, 18% on the transfer of development rights, 5% on units handed back to existing residents, and non-creditable GST on construction materials. These taxes significantly reduce the margins on redevelopment projects, making them financially unviable,” Jain explained. Jain also reiterated the urgent need for GST reform to enable smoother redevelopment processes. CREDAI-MCHI, alongside several developers, has already made detailed representations to the GST Council, seeking the reclassification of development rights as immovable property, which should not attract GST under current laws. “A clear, consistent interpretation of GST law, tailored to the nature of redevelopment transactions, is critical for restoring confidence in the sector,” Jain concluded.

The impact of this judgment on Mumbai’s redevelopment prospects cannot be overstated. According to CREDAI-MCHI, over 25,000 buildings in the Mumbai Metropolitan Region (MMR) are eligible for redevelopment, with an estimated project value exceeding Rs 30,000 crore. This is a significant opportunity, especially considering that the Maharashtra Housing and Area Development Authority (MHADA) has already initiated structural audits for nearly 13,000 cessed buildings in South Mumbai. The ruling comes at a time when Mumbai, grappling with its limited land resources, is increasingly turning to vertical growth and redevelopment as a solution to its housing crisis. The judgment is expected to provide the much-needed boost for redevelopment projects, encouraging investment and unlocking housing supply. By addressing the regulatory and tax challenges, the ruling has the potential to accelerate the redevelopment of the city’s aging infrastructure, a critical need for the urban population.

CREDAI-MCHI, as a representative body of over 1,800 developers in the MMR, remains committed to advocating for smoother redevelopment processes and supporting housing societies through clearer legal frameworks. The organisation has announced plans for the second edition of its EODR Exhibition, aimed at showcasing best practices and addressing challenges in the redevelopment sector. The ultimate goal of these initiatives is to align Mumbai’s redevelopment with the principles of sustainability, affordability, and inclusivity. A balanced and fair approach to taxation, combined with streamlined regulations, could not only ease the financial burdens on developers but also ensure safer and more equitable housing for residents.

As Mumbai continues its quest to overcome housing shortages and revitalize its infrastructure, the lessons from this GST ruling will be crucial in shaping the future of urban development in the city. The next steps will be closely watched by all stakeholders involved in Mumbai’s ambitious journey towards urban renewal.

CREDAI-MCHI Hosts Panel on GST Relief for Mumbai Projects