At its 54th meeting held in New Delhi on September 9, the Goods and Services Tax (GST) Council decided to include the renting of commercial property by an unregistered person to a registered person under the Reverse Charge Mechanism (RCM), aiming to prevent revenue loss. Additionally, the Council determined that the responsibility to pay GST on commercial property rentals will now fall under the RCM. This means the tax liability will shift from the supplier, i.e., the landlord, to the recipient or tenant of the commercial rental services. The meeting, chaired by Finance Minister Nirmala Sitharaman, saw the participation of key officials from the finance ministry, along with finance ministers from different states.
The GST Council also provided clarification regarding the tax treatment of preferential location charges (PLC). It stated that PLC, when paid alongside the price for property construction, should be considered as part of the same supply, which is classified as construction services. As a result, PLC will be subject to the same tax rate applicable to construction services. This clarification ensures consistency in how these charges are treated under the Goods and Services Tax regime.
The government issued a statement to clarify that location charges or Preferential Location Charges (PLC) paid in conjunction with the consideration for construction services of residential, commercial, or industrial complexes, prior to the issuance of a completion certificate, are part of a composite supply. In this scenario, the primary service is the supply of construction services, and PLC is naturally bundled with it. Therefore, PLC is eligible for the same tax treatment as the main supply, which is a construction service.
Preferential Location Charges (PLC) refers to an additional fee charged by the builder to the buyer for assigning a unit in a preferred or superior location within a complex or building. This charge is levied for offering a better or more desirable placement of a unit, which may include factors such as a better view, proximity to amenities, or favorable positioning within the property.
Residential construction is subject to a tax rate of 5%, while commercial construction is taxed at 12%. The debate surrounding the taxability of Preferential Location Charges (PLC) centered on whether it should be considered a separate, distinct service taxed at the standard rate of 18%, or whether it should be treated as an integral part of the construction service, subject to the applicable rates of 5% for residential and 12% for commercial projects. Under the previous service tax regime, favorable rulings supported the view that construction services and PLC were bundled and should be taxed together. However, under the GST regime, some unfavorable Advance Rulings classified PLC as a separate service, subject to the higher rate of 18%. This recent clarification provides relief to builders by resolving any uncertainties regarding the tax treatment of PLC, affirming that it is part of the bundled construction service and subject to the respective rates of 5% or 12%.
DGGI: Insurance Companies Face ₹20,000 Crore Liabilities for GST Violations
The Directorate General of GST Intelligence (DGGI), the central body responsible for preventing GST evasion, has uncovered violations of GST regulations by insurance companies. According to the Principal Director General of DGGI, these companies have failed to pay GST on services rendered to employees working in Special Economic Zone (SEZ) units.
Recently, the DGGI issued notices to around 20 general insurance companies operating within SEZs, alleging that they owe a total of ₹20,000 crore in unpaid dues. The unpaid amounts are for services provided to employees of industrial units in SEZs and their families.
An official clarified that these services are not exempt from GST, which means the insurance companies are obligated to pay the outstanding amounts.
Several prominent insurance companies have received show-cause notices from the DGGI, including HDFC Ergo General Insurance Co., Star Health & Allied Insurance, Cholamandalam MS General Insurance Co., New India Assurance Co., and United India Insurance Co. The notices focus on issues related to Integrated GST (IGST), with the DGGI accusing these companies of misapplying provisions that exempt certain SEZ services under Section 16 of the IGST Act.
An official noted that while some insurance companies have been paying GST in certain instances, others have failed to comply with the regulations. “This is a clear violation of GST rules,” he remarked.
As a result, general insurance companies now face a combined GST liability of around ₹20,000 crore.
The issue of GST evasion within the insurance sector has been ongoing since November 2022. Since then, several insurance companies have made partial payments while also seeking intervention from the Finance Ministry and the GST Council to resolve the matter.
After conducting thorough investigations, the Directorate General of GST Intelligence (DGGI) has issued formal notices to these companies, holding them accountable for the unpaid GST amounts.
At the 53rd GST Council meeting held on June 22, 2024, several issues related to the insurance sector were clarified. The Council addressed matters such as co-insurance premiums and reinsurance commissions, classifying them as “no supply” under Schedule III of the Central Goods and Services Tax (CGST) Act, 2017. Additionally, it was decided to regularize past cases on an “as is where is” basis.
The Council also discussed the GST liability concerning reinsurance services for certain insurance schemes, as specified in notification No. 12/2017-CT (Rate).
However, an official clarified that the misuse of GST provisions by insurance companies operating in Special Economic Zones (SEZs) does not fall under the scope of the recent clarifications issued during the 53rd GST Council meeting. These companies remain liable for the violations uncovered by the Directorate General of GST Intelligence (DGGI).
