Mohit Jain
Quick Summary
1. Introduction: India's Growing Fractional Ownership The growth of Fractional Ownership Platforms (FOPs) has caused a structural change in the real estate investment market in India. With investments as little as ₹10 to ₹25 lakhs, these platforms enable retail investors to co-invest in high-value
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FAQ :
No, the purchase or sale of SM REIT units, whether in the primary (IPO) or secondary market, is not subject to GST. SM REIT units are classified as 'securities' and are specifically excluded from the definition of 'goods' under the CGST Act.
Rental income received by the SPV from commercial tenants is subject to 18% GST under the Forward Charge mechanism. The SPV is considered the supplier of rental services, with SAC Code 997212 applicable.
Yes, investment manager fees are considered taxable services and are subject to 18% GST. The services provided by the investment manager, such as portfolio management and property supervision, fall under various SAC codes, with 997221 and 997119 being most relevant.
The transfer of property to an SPV, whether as a capital contribution or in exchange for shares, is a complex area. While Schedule III of the CGST Act excludes the sale of land and buildings from supply, the transfer for consideration other than money (shares) raises questions. There is a risk of reclassification as a taxable service or being considered an 'exempt supply,' necessitating proportionate Input Tax Credit (ITC) reversal.
Even though SM REIT unit transactions are exempt from GST, they are considered 'exempt supply' for the purpose of ITC reversal under Section 17(3) of the CGST Act. This requires SM REITs to reverse a proportionate amount of ITC on common inputs and services used in managing the overall scheme, which can be a significant compliance cost.
Key unanswered questions include whether the property transfer to SPV is a taxable supply, the exact ITC reversal requirements for SM REITs, the GST treatment of pre-registration platform fees, and the applicability of IGST on services for NRI investors. The CBIC is urged to provide clarity on these issues.
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