Gst on real estate sector

GST ON REAL ESTATE SECTOR

INTRODUCTION

In the 33^rd GST Council meeting, which was held on 24th February 2019, the following points were considered –

1. The meeting was chaired by the then Finance Minister Arun Jaitley. And the main consideration of the meeting was GST taxation on the Real estate sector.
2. It was decided that GST rates be slashed on the under-construction houses, without claiming ITC on it. However, the GST rate on lottery or Cement remained the same.
3. The real estate sector is considered to be the most important factor for the development of the economy and it contributes between 6-8% to India’s GDP.
4. Unlike the multiple taxations in the previous regime, GST subsumed the taxes like Service tax and VAT.
5. Under GST a flat rate of 12% is applicable on under-construction properties while GST is exempted on completed or ready-to-sale properties, provided the Completion Certificate has been received from the authority in the name of the said property.
6. Further in March 2019, the GST Council proposed to apply 5% instead of 12% on residential properties and 1% instead of 8% for the affordable housing segment. But the said concessional rate is applicable, where the taxpayer does not claim any amount of ITC on it.

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TAXABILITY OF REAL ESTATE SECTOR

1. PRE GST-PERIOD

NAME OF TAX	RATE	TIME WHEN THE LIABILITY ARISE
VAT (DEPENDING ON STATE TO STATE)	1% – 4%	SALE OF ANY UNDER-CONSTRUCTION PROPERTY
SERVICE TAX	4.5%
REGISTRATION CHARGES (DEPENDING ON STATE TO STATE)	0.5% – 1%
STAMP DUTY CHARGES (DEPENDING ON STATE TO STATE)	5% – 7%

 

2. POST GST PERIOD

TIME WHEN LIABILITY ARISE	PARTICULARS	RATE	AVAILABILITY OF ITC
READY-TO-MOVE PROPERTY AND COMPLETION CERTIFICATES ISSUED	NOT APPLICABLE, SINCE THE SAME IS NOT CONSIDERED AS A SUPPLY OF GOODS OR SERVICES UNDER CGST ACT 2017.	NIL	NOT AVAILABLE
UNDER CONSTRUCTION PROPERTIES, PURCHASED UNDER CREDIT-LINKED SUBSIDY SCHEME	APPLICABLE, SINCE THE SAME IS SUPPLY OF SERVICES UNDER SCHEDULE I OF CGST ACT, 2017	8% AFTER CUTTING 1/3 COST OF LAND	AVAILABLE
UNDER CONSTRUCTION PROPERTIES	APPLICABLE, SINCE THE SAME IS SUPPLY OF SERVICES UNDER SCHEDULE I OF CGST ACT, 2017	12%	AVAILABLE
ON RESALE PROPERTIES	NOT APPLICABLE	NIL	NOT AVAILABLE
PURCHASE AND SALE OF LAND	NOT APPLICABLE, SINCE THE SAME IS NOT CONSIDERED AS A SUPPLY OF GOODS UNDER CGST ACT 2017.	NIL	NOT AVAILABLE
WORKS CONTRACT	APPLICABLE	18%	AVAILABLE
COMPOSITE SUPPLY OF WORKS CONTRACT	APPLICABLE	18%	AVAILABLE
COMPOSITE SUPPLY OF WORKS CONTRACT RENDERED TO GOVERNMENT AUTHORITIES	APPLICABLE	12%	AVAILABLE
COMPOSITE SUPPLY OF WORKS CONTRACT IN RESPECT OF PUBLIC SERVICE.	APPLICABLE	12%	AVAILABLE
COMPOSITE SUPPLY OF WORKS CONTRACT IN RESPECT OF AFFORDABLE HOUSING	APPLICABLE	12%	AVAILABLE

IMPACT OF GST ON REAL ESTATE SECTOR

1. ON BUYERS

In the pre-GST period, buyers were required to apply the rate of VAT, Service tax, Registration charges & Stamp duty on the purchase of the under-construction property.

And there was a different rate in respect of VAT, Registration charges & Stamp duty, depending upon the state in which such property is located, thus, the prices of such properties vary to a great extent.

Now under the GST regime, a single tax rate @ 12% is charged in an under-construction property, and ready-to-move-in properties do not attract any GST liability, just like the previous regime.

Hence the buyers are benefited as they are required to pay reduced taxes under GST. Though GST is looked at quite cautiously by the buyers in the short-term, however in the long term, GST is expected to have a positive impact on buyers.

2. ON DEVELOPERS AND CONTRACTORS

In the pre-GST period, the developers were required to deposit different types of taxes like Excise duty, VAT, Customs duty, Entry taxes, etc.

Taxes on approval charges, architect professional fees, labor charges, legal charges, with the government, and the ITC in respect of duties like CST, Customs duty, Entry Tax, were not available.

This led to double taxation and resulted in the increased cost of purchasing the property by the buyers. Now under the GST regime, the developers’ construction costs have been significantly reduced, since a multiplicity of taxes has been eliminated and ITC is available on the full amount of input tax paid.
It was seen that the developers were the most benefited amongst the other stakeholder.

Also, which so many taxes to be collected and deposited, the developers were required to undertake multiple calculations to arrive at ITC available to be claimed, so that the benefit can be passed to the buyers. In such a calculation, there was a lack of transparency which affected the developers.

3. ON OTHER STAKEHOLDERS

Certain impact of GST implementation was also seen on the ancillary services like labor, suppliers, service suppliers, and many more. GST has a direct impact on the taxation of these ancillary services.

Like, in the earlier tax regime, cement was taxed @ 27% – 31%, which is now taxed @18% in the GST regime. Thus, lowering of tax would lead to less pricing by the supplier, which will lead to lower cost of construction. Some of the services along with the GST Rates are as follows –

PRODUCT PROVIDED	RATE UNDER GST
SAND	5%
SAND & FLY ASH BRICKS	12%
STEEL	18%
PAINTS	18%
MARBLE AND GRANITE	28%
CEMENT	18%

REVERSE CHARGE MECHANISM

The provisions of RCM under the GST act applicable to the real estate sector is as follows

1. Under the GST law, where the goods/service are provided by a person, not registered under GST, then the registered developer or the recipient is required to pay GST on such supply.
2. Also, in the case where services have been taken from a goods transporter, or any legal services, from an individual or firm, government, or local authorities, the developer or the recipient of such services will have to pay the GST on such supplies.
3. Apart from the above two provisions, where the developer pays tax under reverse charge mechanism, the said amount of tax cannot be claimed as ITC and shall not be considered as the ITC available on input taxes paid.

PROVISIONS OF ITC

It is to be noted that under GST, ITC is provided with the supplier in respect of the taxes paid by them on all input goods and services, specifically used in the course or furtherance of business.

PROVISIONS APPLICABLE FROM 1ST APRIL 2019

• It was provided that the tax rates would be 1% instead of 1.5% for affordable housing projects and 5% instead of 7.5% for non-affordable housing projects, however, the same shall not be allowed to claim any amount of ITC on these projects. These rates are applicable for projects commencing on or after 1^st April 2019.
• Also, in respect of goods and services used in respect of such projects shall also be ineligible under the concessional tax regime.
• Apart from this, at least 80% of inputs goods and services excluding capital goods, long-term lease, electricity, high-speed diesel, motor spirit, be purchased from a registered supplier. In case, the above condition is not fulfilled, and the said amount falls short of 80%, the developer will be required to pay tax @ 18% on an RCM basis.
• In case, cement is purchased from an unregistered supplier, the same be taxed @28% under the RCM, however in respect of capital goods, the prescribed rate be applied but the taxes will be paid under RCM.
• Also, in respect of the tax liability arising due to the payment under RCM, the same shall be added to the outward tax liability of the month, and the same shall be made by the month of June coming after the end of the financial year, in which the tax is required to be paid.

CONDITIONS FOR CLAIMING ITC

The following conditions are required to be complied with by the developer, to claim the amount of ITC on input taxes paid.

1. The person shall be in possession of a valid tax invoice or debit note issued by the supplier.
2. The person should have received the goods and /or services or both, in respect of which such taxes have been paid.
3. The tax paid by the developer must have been deposited with the government, by the supplier within the prescribed time.
4. The developer shall not delay in furnishing the return and the said return shall be valid and correct.
5. The goods and services supplied should be used specifically for the purpose for which they have been purchased, and shall should not include any purpose related to personal use.

RESTRICTION ON ITC

It is to be noted that ITC shall not be allowed to be claimed where the developer received the supply of goods/service supplies on his own account. But the said restriction is not applicable on plant and machinery

STAMP DUTY

Under the GST regime, the stamp duty and registration charges have been excluded. However, the stamp duty shall be applicable on the completed properties and under-construction properties as it was under the pre-GST regime.

FAQs ON GST ON REAL ESTATE SECTOR

Q.: What are the tax rates under GST on the real estate sector under the new scheme and what are its conditions?

The following rates are applicable to the real estate sector with effect from 1^st April 2019

RATE	PARTICULARS
1%	NEW AFFORDABLE HOUSING PROJECTS
	ONGOING AFFORDABLE HOUSING PROJECTS OPTING FOR NEW RATES
5%	ONGOING OTHER THAN AFFORDABLE HOUSING PROJECTS
	NEW OTHER THAN AFFORDABLE HOUSING PROJECTS
1%	PROJECTS WITH COMMERCIAL SPACE <15% OF TOTAL CARPET AREA

Conditions

• The amount of ITC on these projects shall not be allowed.
• ITC in respect of goods and services used in respect of such projects shall also be ineligible under the concessional tax regime.
• Apart from this, at least 80% of inputs goods and services excluding capital goods, long-term lease, electricity, high-speed diesel, motor spirit, be purchased from a registered supplier. In case, the above condition is not fulfilled, and the said amount falls short of 80%, the developer will be required to pay tax @ 18% on an RCM basis.
• In case, cement is purchased from an unregistered supplier, the same be taxed @28% under the RCM, however in respect of capital goods, the prescribed rate be applied but the taxes will be paid under RCM.
• Also, in respect of the tax liability arising due to the payment under RCM, the same shall be added to the outward tax liability of the month, and the same shall be made by the month of June coming after the end of the financial year, in which the tax is required to be paid.

Q.: What is the basis for the classification of residential real estate?

Residential Real Estate Project is one where the carpet area of the commercial space provided in the said project is up to a maximum of 15% of the total carpet area of the project.

Q.: What is the definition of an affordable housing apartment?

As per the real estate act, an affordable housing apartment is considered as one where –

• The carpet area of the said apartment is a maximum of 60 square meters in case the property is situated in a metropolitan city.
• The carpet area of the said apartment is a maximum of 90 square meters in case the property is situated other than a metropolitan city.
• The total amount of consideration, charged by the builder, does not exceed Rs.45 lakhs.
• The person purchasing the apartment is a beneficiary under PMAY CLSS. It is to be noted that where any person is registered as a beneficiary under PMAY CLSS, the above 3 provisions are not applicable.

Q.: What is the definition of an ongoing project as of 1^st April 2019?

For a project to be termed as an ongoing project, the following conditions need to be satisfied –

• Where the project requires a commencement certificate to be issued by the authority, and the same is received on or before 31st March 2019, duly certified by a registered architect, chartered engineer, or a licensed surveyor, evidencing that construction under the said project commenced on or before 31st March 2019.
• Where the project does not require a commencement certificate to be issued by the authority, the said certificate is received from the registered architect, chartered engineer, or a licensed surveyor on or before 31st March 2019.
• Where the Completion Certificate is not issued for the whole or any part of the project, on or before 31st March 2019.
• Where the occupation of the whole or a major part of the project is not taken up by the buyers before 31st March 2019.
• The apartment has been booked either wholly or partly.

Q.: Does the old tax rates be levied by the developers after 1^st April 2019?

It is to be noted that where an ongoing project exists after 1^st April 2019, the promoter or builder of said projects, can apply to pay taxes at old rates, however, this option is available only once. The communication in respect of payment under the old tax rate, be made to the Jurisdictional Commissioner by 20^th May 2019 in the prescribed form. And where no communication is received within the prescribed time, it will be deemed that the new tax rates be applicable on the said ongoing projects.

Also, there the promoter and developers are free to choose the said tax structure for different ongoing projects. Like they can have an old tax rate on one ongoing project and a new tax rate for any other ongoing projects. There is no bounding to apply the same rate for all ongoing projects.

Q.: What is the applicable rate on commercial shops after 1^st April 2019?

PARTICULARS	RATE	ITC ALLOWED
COMMERCIAL APARTMENTS IN RESIDENTIAL REAL ESTATE PROJECT (RREP). UNDER NEW TAX RATE	5%	NOT ALLOWED
COMMERCIAL APARTMENTS IN REAL ESTATE PROJECT (REP) UNDER OLD TAX RATE	12%	ALLOWED

Q.: What is the GST rate applicable on TDR, FSI, and long leasing of land?

It is to be noted that the TDR and FSI made by means of an agreement and the same made on or before 31st March 2019 were totally exempted from tax. However, from 1^st April 2019, the following rates be applicable –

• Where the supply of TDR, FSI, or long leasing of land is made for the construction of residential apartments, the rate of tax shall be applicable on the value which is proportionate to the unbooked residential apartments. The rate of tax will be 18% on the value of unbooked residential apartments.
• In case, the supply of TDR, FSI, or long leasing of land is made for the construction of commercial space, the applicable GST rate would be 18%.

Q.: By whom shall the tax be paid in respect of supply of TDR and FSI?

After the amendment, the promoter would be liable to pay GST under reverse charge mechanism on TDR or floor space index supplied on or after 1st April 2019. Thus, irrespective of the nature of the transaction and the registration aspect of the supplier, the tax on the supply of TDR and PSI shall also be paid by the promoter under RCM.

Q.: When does the liability to pay tax in respect of supply of TDR and PSI arises?

PARTICUALRS	TIME WHEN LIABILITY ARISES
TDR	ON THE DATE OF COMPLETION OR FIRST OCCUPATION OF THE PROJECT, WHICHEVER IS EARLIER. GST BE APPLIED ON THE VALUE OF UNBOOKED RESIDENTIAL APARTMENT AS ON THE ABOVE DATE.
FSI	1.      CONSIDERATION RECEIVED IN THE FORM OF CONSTRUCTION OF COMMERCIAL OR RESIDENTIAL APARTMENTS – ON THE DATE OF ISSUANCE OF COMPLETION CERTIFICATE.   2.      CONSIDERATION RECEIVED IN MONETARY FORM –   ·         FOR RESIDENTIAL APARTMENT – ON THE DATE OF ISSUANCE OF COMPLETION CERTIFICATE. ·         FOR COMMERCIAL APARTMENT CONSTRUCTIONS – IMMEDIATELY ON THE DATE OF COMPLETION.
LONG LEASING	ON THE DATE OF ISSUANCE OF THE COMPLETION CERTIFICATE IN CASE OF CONSTRUCTION OF RESIDENTIAL APARTMENTS. IMMEDIATELY ON THE DATE OF COMPLETION, IN CASE OF COMMERCIAL PROPERTY.

Q.: Is the promoter allowed to revise the invoice by issuing credit/debit note in respect of change of tax rates after 1^st April 2019?

Where any invoices have been issued by the promoter, prior to 20^th May 2019, and the same are not in accordance with the applicable tax rate exercised by then, the promoters can issue a debit/credit note to give the correct effect to the invoice issued.

Q.: How does the works contract services classify under the new regime and what are the applicable tax rates?

The following classification, in respect of the works contract services, has been provided under the new scheme –

• Affordable Housing Project where the tax rate is 12%, provided the carpet area of such project does not exceed 50% of the total carpet area.
• Residential housing projects which are not included in the above project, are taxed @ 18%.
• Any sought commercial housing and apartments are taxed @18%.

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