Impact of GST on Real Estate Sector Effective from 1st April 2019 (01-04-2019)

Impact of GST on Real Estate Sector, GST Issued in Real Estate Sector: Real Estate is one of the major revenue generating sectors for the Indian economy. It is the second-largest employer next to agriculture and accounting for 7.8% of GDP during financial year, 2014-2015, according to the Economic Survey of India financial year, 2014-2015. check more details for GST impact on Real Estate Sector from below…

Currently, a Builder is subjected to numerous taxes such as VAT, service tax, entry tax, Octroi, LBT, CVD, SAD, etc. which come under the indirect tax net. The high level of compliances there-under and further the litigation involved therein has made the life of Builders difficult and burdensome. With the introduction of GST, major levies shall be subsumed into a single tax ‘GST’; thereby putting to rest to old controversies

The CGST, IGST, UTGST & SGST in some states have achieved finality with regard to provisions stated therein. In this article, a few important concepts pertaining to real estate sector and related issues have been dealt.

Impact of GST on Real Estate Sector Effective from 1st April 2019

GST Rate

GST rates for Ongoing Projects (Where option not exercised for old rates) and New Projects (01.04.2019 onwards)

GST Rates on Real Estate

GST Rates

Meaning of Affordable Housing:

  • a) A Residential House/flat of carpet area of up to 90 Sqm (968.752 sq ft) in Non-metropolitan Cities/towns having value up to 45 Lacs .
  • b) A Residential House/flat of Carpet area of up to 60Sqm (645.835 sq ft.) in Metropolitan cities/towns having value up to 45 Lacs.

Meaning of Ongoing Projects:

  • a. Commencement certificate is issued on or before 31.03.2019
  • b. Where commencement certificate is not required, It should be certified by Architect or Chartered Engineer or a licensed surveyor of the respective local body of the city or town or village or development or planning authority, that the project has started on or before 31.03.2019.
  • c. Completion certificate has not been issued or first occupation has not been done before 31.03.2019.
  • d. Flats/ units has been partly or wholly booked on or before 31.03.2019.
  • e. The Construction of the project shall be considered as started before 31.03.2019 if the earth work for site preparation for the project has been completed and excavation for foundation has been started.

GST rates for ongoing Projects: (Where option exercised for old rates before 10th May 2019 in prescribed form)

CategoryEffective GST RateConditions
Residential ProjectsAffordable8%With ITC
Non Affordable12%With ITC
Commercial Projects12%With ITC
Mix Projects (Commercial and residential projects)Commercial12%With ITC
Affordable8%
Non Affordable12%

Payment mode of GST @ 1% or 5% in New Scheme

  • a. It is to be paid by Cash Ledger only.
  • b. However amount of ITC attributable to construction of project whose time of supply is on or after 01.04.2019 as per prescribed formula given in notification may be used for payment of above GST liability.
  • c. 80% Inputs and Input services shall be received from registered Persons till the date of completion certificate or first occupation whichever is earlier. If it fall short then at the end of financial year builder has to pay RCM @ 18%.
  • d. Builder has to maintain project wise account of inward supplies and calculate RCM accordingly.
  • e. Input Tax credit has to be shown as ineligible credit in FORM 3B.
  • f. 80% limit has to be calculated financial year wise. A excess in Financial year cannot be adjusted against shortfall of next year.

New GST rates notified for some services related to Real estate sector

CategoryEffective GST Rate
Composite Supply of works contract for affordable residential apartments on which GST @ 1% (Simply Construction Contractor)12%
Non Affordable12%
Any Goods other than Cement and capital Goods by an unregistered person to a promoter(Say Builder) for construction of the project on which tax is payable by the promoter as recipient of goods u/s 9(4)18%
Cement28%
Transfer of development rights or FSI (including Additional FSI) for construction of a project by promoter18%
Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter18%

Conditions

Service by way of transfer of Development rights(TDR) or FSI (including Additional FSI) or Upfront amount for leasehold rights on or after 01.04.2019 for construction of residential apartments by promoter in a project intended for sale before occupation certificate is exempt subject to certain conditions.

For Mixed projects exemption will be restricted to proportionate carpet area of residential project subject to certain conditions.

GST to be paid by promoter under RCM on the value attributable to the residential apartments remaining un booked as on the date of issuance of completion certificate. The formula is as under: (Lower of below two:-)

  • i. GST payable on TDR or FSI Unbooked carpet area of residential apartment / Total carpet area of the residential apartments in the project
  • ii. 5%/1% (Non Affordable/Affordable) on value of residential apartments remained un booked.

Some other important points

  • a. Where % of invoicing is more than the % of completion and difference between % invoicing and % of completion of construction is more then 25% the value of invoicing shall be deemed to be % of completion plus 25%.
  • b. Where the value of invoicing issued on or before 31.03.2019 exceeds the consideration actually received on or prior to 31.03.2019 by more then 25% then the value of such invoices shall be deemed to be actual consideration received plus 25%.
  • c. Where the value of procurement of inputs and input services prior to 01.04.2019 exceeds the value of consumption of the inputs and input services used in the construction completed as on 31.03.2019 by more then 25% then Actual consumption plus 25% shall be deemed to be value of procurement.
  • d. The jurisdictional commissioner Or any other officer authorized in this regard may fix the eligible ITC based on actual per unit consumption based on the documents certified by CA/CWA submitted by the builder in this regard applying accepted principles of accounting.

Important Concepts and related Issues under GST

Levy

While ‘post Occupancy CertificateSale’ byitself is not covered under the ambit of GST, sale of under construction flat shall attract GST. Attention is drawn to Section 7(1) (d) read with Item 5(b) of Schedule II to the CGST Act, 2017/SGST Act, 2017 which deals with taxability of under construction flats

The above-mentioned item of Schedule II is a reproduction of declared service as present under current Service Tax regime except for the words ‘after its first occupation, whichever is earlier’ The said reading of the amended item of Schedule II may lead to a conclusion that even if the completion certificate has not been received by the builder, if first occupancy in the premises has been taken place, builders may not be required to charge GST if entire consideration is received after first occupation. This would come as a blessing for the builders who due to certain reasons are unable to get the completion certificate from the local authority. However, the expression ‘first occupation’ is not defined in the Act and therefore, will be a subject matter of interpretation and litigation in absence of any clarification by the Government.

Registration

The concept of centralized registration shall be done away with under the GST Regime. As per Section 22 of CGST Act/SGST Act every supplier shall be liable to be registered in the State or Union territory ‘from where’ he makes taxable supply. Further, location of supplier is defined to include ‘fixed establishment’ which, in turn, is defined vide Section 2(50) of the CGST Act/SGST Act.

Usually, wherever construction is carried out, a site office or temporary office is formed so as to effectively manage the construction and store materials, etc. Accordingly, there are chances that such site offices may be said to be fixed establishments and services may be said to be deemed to be provided from such site offices.

Therefore, appropriate tax i.e. CGST & SGST or IGST (depending upon place of supply rules) may be levied from each state from where taxable supply is made.

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