In re Confident Projects Residential (GST AAR Kerala)
Introduction: In a significant ruling by the Authority for Advance Ruling (AAR) in Kerala, the GST implications on construction services within residential real estate projects have been clarified. M/s. Confident Projects Residential, a prominent builder in Kerala, sought an advance ruling on whether different GST rates could be applied to affordable and non-affordable residential apartments within the same project. This case sheds light on the taxation nuances for mixed real estate projects under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (KSGST Act).
Detailed Analysis: The applicant, engaged in the construction and development of residential real estate projects, proposed a project comprising both affordable and non-affordable housing units. According to Notification No. 3 of 2019, affordable residential apartments attract a GST of 1.5% (0.75% CGST and 0.75% SGST), while other residential apartments are taxed at 7.5% (3.75% CGST and 3.75% SGST).
The AAR analyzed the tax structure introduced from April 1, 2019, by amending Notification No. 11/2017 CT (Rate) through Notification No. 03/2019. The ruling focused on whether the mentioned GST rates apply to construction services for affordable and non-affordable residential apartments in a single project. The Authority clarified that both categories could coexist in a residential real estate project, with respective GST rates applicable as per the conditions outlined in the notification.
The conditions include payment of central tax in cash, restriction on input tax credit except as prescribed, and adherence to the provisions regarding the supply of construction services. The ruling emphasized maintaining project-wise accounts of supplies from registered and unregistered suppliers and calculating tax payments on any shortfall at the end of the financial year.
Conclusion: The Kerala AAR’s ruling provides clarity on the application of GST rates for construction services of affordable and other residential apartments within a single residential real estate project. This decision highlights the government’s intention to support affordable housing while ensuring the GST framework’s adaptability to mixed real estate projects. By delineating the tax rates and conditions for different types of residential units, the ruling aids developers in compliance and planning. Furthermore, it underscores the importance of detailed record-keeping and adherence to specified conditions to avail of the prescribed tax rates. This case serves as a guide for builders and developers navigating the GST regime in the real estate sector, promoting transparency and legal certainty in tax matters.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA
M/s. Confident Projects Residential, SA Road, Vytila, Ernakulam (herein after referred to as the applicant) is a leading builder in the State of Kerala. The applicant is engaged in the construction and development of Residential Real Estate Projects.
2. At the outset it is clarified that the provisions of the Central Goods and Services Tax Act, 2017 (.’terein after referred to as CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (herein after referred to as KSGST Act) are same except for certain provisions. Accordingly, a reference herein after to the provisions of the CGST Act, Rules and Notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the Notifications issued there under.
3. The applicant requested advance ruling on the following:
3.1. Whether the rate mentioned Notification No. 3 of 2019 in Clause(ii) a(i) for affordable residential apartments and rate mentioned in Clause (iii) (a) (ia) for other than affordable residential apartments can be effectively levied in a single project/ building that is being developed as Residential Real Estate Project.
4. Contentions of the Applicant:
4.1. The applicant submits that they are involved in the construction and development of residential real estate projects. After the announcement of affordable housing schemes by the Government of India under PMAY, the applicant has also engaged in the construction and development of affordable housing segment. Currently they are offering 15 projects under the affordable housing segment and 19 projects as other than affordable housing scheme. After the new scheme on real estate sector as per Notification No. 3 of 2019 lias been made effective, the applicant is remitting GST at 1% [effective rate] for affordable housing projects and 5% [effective rate] for other than affordable residential real estate projects. Now with a view to offer increased inventory of affordable residential apartments, the applicant is desirous of offering both affordable residential apartments and other than affordable residential apartments in same residential project.
