Real estate firms pay Rs 1,500 crore GST on royalty receipts

The tax liability notices issued by the DGGI to several real estate players seek to recover GST for the supply of right to use the brand name. (Image/Reuters)

Several real-estate companies across India have paid more than Rs 1,500 crore as Goods and Services Tax (GST) to the government in the past few months for intra-group transactions related to royalty payments for brand name usage, a government official aware of the matter told FE.

“The government had sent notices to several real-estate companies…as many had not paid GST over using brand names of their parent companies,” the official said. Real estate companies typically operate on a special purpose vehicle (SPV) model wherein each project is undertaken in a separate SPV.

The authorities are of the view that the use of the brand (name and logo of the flagship company) by the SPVs should be subject to 18% GST as a service is seen to be rendered, say experts.

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The companies who have paid the GST are Tata Realty and Infrastructure, Tata Housing, Jindal realty, DLF, and Vatika Group among others. The Tata group companies have paid over Rs 100 crore GST – the highest among major companies, the official said.

On November 20, FE had reported that The Directorate General of GST Intelligence (DGGI) has sent notices to various real estate companies, demanding that GST be paid for a clutch of transactions among group companies or joint venture partners – a move seen as part of a strategy to widen the tax net for the sector.

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The DGGI identifies fees for management services and royalties for the use of brand names as services subject to an 18% tax rate. Large real estate firms typically engage in intra-group and intra-joint venture (JV) transactions as integral components of their operational strategies, encompassing cash management and JV arrangements.

Under the GST law, transactions between related entities attract tax even when there is no consideration, say tax experts. The tax liability notices issued by the DGGI to several real estate players seek to recover GST for the supply of right to use the brand name.

Experts say that the “principle of stewardship” is firmly established and accepted in the realm of taxation. Holding companies undertake specific activities for their own benefit, such as the utilisation of logos and brands by the Special Purpose Vehicle (SPV), which evidently serves the interests of the flagship company.