Redevelopment, slum rehabilitation and the value of free flats
Flats given to existing occupants for no money. The tax is on a value nobody agreed.
In a redevelopment or rehabilitation project the developer provides construction service to the existing occupants or the society in exchange for development rights, and the consideration is non monetary. The value of that construction service must be determined under Section 15 with Rule 27, ordinarily by reference to the value charged to independent buyers of similar apartments nearest the relevant date. The development rights leg attracts the notified exemption and reverse charge mechanism for residential projects.
The structure
The society or the occupants transfer development rights. The developer constructs the rehabilitation component and hands it over, and sells the free sale component.
The rehabilitation component is a construction service supplied to the society or the occupants for non monetary consideration, valued under Rule 27.
The development rights leg is governed by the notified exemption for residential projects, with reverse charge on the unbooked proportion at completion.
Specified slum rehabilitation and government housing schemes have their own concessional entries, and the entry applicable to the scheme must be identified rather than assumed.
The valuation dispute
The department values the rehabilitation construction at the free sale price of similar apartments. Developers contend for construction cost, on the basis that the rehabilitation units are not comparable in specification or location.
The mechanism in the notification for the landowner's share in a joint development points to the value charged to independent buyers nearest the relevant date, and the department applies the same approach here.
Where the specifications genuinely differ, the comparability argument must be built with the specification comparison, the approvals and the cost records.
Where no free sale component exists, or none has been sold near the relevant date, Rule 30 cost based valuation becomes the fallback and the cost sheet is the case.
Managing the project
Value the rehabilitation component at the appraisal stage and fund the tax; it arises without a corresponding receipt.
Keep the specification comparison between rehabilitation and free sale units, with approvals, from the start.
Document the scheme under which the project is undertaken and the concessional entry claimed.
Address the tax on the rehabilitation component expressly in the development agreement with the society.
What to do on Monday
Value and fund the rehabilitation component tax at the project appraisal stage.
Keep the specification comparison between rehabilitation and free sale units with the approvals.
Identify and document the concessional entry claimed for the scheme.
Deal with the tax on the rehabilitation component expressly in the society agreement.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is the rehabilitation component taxable?
Yes. It is a construction service for non monetary consideration, valued under Section 15 with Rule 27.
At what value?
Ordinarily by reference to similar apartments sold to independent buyers nearest the relevant date, with a comparability argument available where specifications genuinely differ.
Are slum rehabilitation projects concessionally taxed?
Specified schemes have their own entries. Identify the entry for the scheme and the period.
Who bears the tax on the rehabilitation component?
Commercially, whoever the development agreement says. Legally, the developer as the supplier. Address it in the agreement.
What if there is no free sale component?
Rule 30 cost based valuation becomes the fallback, and the cost sheet must be defensible.
In this cluster
- GST on real estate: the complete developer position
- Munjaal Manishbhai Bhatt: the one third land deduction is optional, not mandatory
- Joint development agreements: who pays, when, and on what value
- Transfer of development rights: the exemption and its conditions
- Works contracts under GST: classification, rate and the credit position
- Government contracts, escalation clauses and rate changes
- ITC restriction under Section 17(5)(c) and (d) for construction
- Preferential location charges, club charges and society transfer fees
- Affordable housing at one percent: the conditions that decide eligibility
- Leasing of land and buildings: the exemption boundary
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.