The recent amendments in the Goods & Services Tax (GST) structure has unsettled realty developers engaged in the redevelopment segment in the Mumbai property market, as realty developers’ body CREDAI-MCHI has reached out to the state government pressing for tax exemption and input tax credit (ITCNSE 0.38 %) provision.

The GST Council recently recommended reducing the tax rates for under-construction projects to 5% from 12% and rate on affordable housing was cut to 1% from 8%, while withdrawing the Input Tax Credit (ITC).

Realty developers have termed the recent changes as a case of double taxation compared to the sale of vacant land. Sale of land parcels are subject to a single taxation slab with GST exemption.

“Work carried out by the developer for old housing societies, MMRDA and Slum Rehabilitation Authority (SRA), being works contract, will continue to be taxed at 12-18% even after April 1, 2019,” said the CREDAI-MCHI in its letter to chief minister Devendra Fadnavis.

The tax incidence in terms of rehab flats allotted to SRA, old tenants are borne by builders and it forms part of project cost. Ultimately this gets factored into sale price of saleable flats.

The body has sought that rehab component of redevelopment project should be taxed at 1% and ITC should be allowed. All the redevelopment projects mentioned above, the saleable flats should be taxed at 1% as against 5%.

Currently, redevelopment category accounts for close to 55-60% of all development work being carried out in Mumbai with the balance development accruing from open plots and mill land.

The developers focusing on redevelopment along with industry bodies CREDAI and MCHI has sought the state government’s intervention urging them to provide a level playing field compared to non-redevelopment category of development.

“Unless the government provides us GST reduction or GST input refunds on all construction materials and work contracts, all redevelopment work in Mumbai will either slow down or seriously dent project feasibility,” said one of the developers engaged in slum rehabilitation work.

In a joint representation, both CREDAI and MCHI bodies have stated that if work carried out by SRA, MMRDA and old societies being work contracts will continue to be taxed 12%-18%, it will not only impact the housing stock for weaker and middle-income groups but further push up the sale price cost of houses. The rationale being that all tax incidence in respect of rehab flats being the project cost will ultimately be borne by the sale unit pricing.

The redevelopment sector primarily led by slum redevelopment category has stated that all rehabilitation construction work carried out by them is already subjected to high level of GST when it comes to all inputs spanning cement, steel, labour and work contracts having GST varying from 12% to 28%.

The two-point demand put forth by the realtors’ bodies seeks 1% tax slab on rehab component with provision of ITC and a 1% slab on saleable flats in redevelopment projects with input tax credit. Currently, the saleable flats are subject to 5% tax without input tax credit.

The argument put forth by the redevelopers is that while saleable pricing and land acquisition cost hedged against rehabilitation cost stands uniform, the 18% GST burden on construction cost of redevelopment constitutes a major handicap for both developers and homebuyers.

According to an SRA policy expert, the imbalance pointed out by redevelopers need to be addressed on priority as it also constitutes a major social challenge for Mumbai in terms of meeting its slum-free city vision.

Mumbai the city currently has an over 60 lakh population awaiting redevelopment under SRA. Over the past two decades, the state and the SRA body has managed to meet a target of nearly 3 lakh houses compared to the 12-lakh unit requirement.