Allowability of ITC to the Landowner before completion certificate through Notification No 2/2021 & 3/2021 of Central Tax (Rate)
As per recommendations of GST council in the 43rd meeting held on 28th May 2021 in relation to allowability of credit of taxes paid by developer to the landowner notified through notification 2/2021 & 3/2021 Central Tax (Rate) dated 02-06-2021.
1. Earlier Provisions before the above notifications:
a. Time of supply of construction services supplied by Developer – Promoter to Landowner – Promoter (Notification 06/2019 Central Tax (Rate) dated 29th March 2019):
Time of supply of construction services supplied against Transferable Development Rights (TDR) or Floor Space Index (FSI) shall arise on the date of issuance of completion certificate for the project or first occupation whichever is earlier. i.e., Developer – Promoter pays GST on supply of construction services to Land Owner – Promoter in the tax period in which completion certificate received or first occupation takes place.
b. Allowability of tax paid by developer as Credit when supply of Construction services by Landowner – Promoter to his buyer (Notification No 03/2019 Central Tax (Rate) dated 29th March 2019):
In S.no 3 Column 5 as per clause (ii) of fourth proviso Land Owner – Promoter is eligible to take credit of taxes charged by developer for supply of construction services if he satisfies following conditions:
i. He required supply apartments before issuance of completion certificate or first occupation whichever earlier and
ii. Payment of taxes should not be less than the amount of ITC.
c. From the above provisions we can observe that Time of supply is falling in the tax period in which completion certificate received or first occupation takes place and land owner is eligible to take ITC only if he further supplies to his buyer before issuance of completion certificate.
Example: as per earlier provisions
A. Date of Issuance of completion certificate is 31-03-2023.
B. If Landowner transfers his portion of apartments before 31-03-2022.
C. Here Developer Pays GST on supply of Construction services to landowner in the tax period March 2023. And landowner required to pay entire tax without availing ITC paid by developer by the tax period March 2022, as developer is liable to pay tax arises in the month March 2023.
D. In this case tax paid by developer on supply of construction services to landowner will become cost to the landowner.
2. New Provisions after the above notifications:
a. Time of supply of construction services supplied by Developer – Promoter to Landowner – Promoter (Notification 06/2019 Central Tax (Rate) dated 29th March 2019 as amended by Notification 03/2021 Central Tax (Rate) dated 02-06-2021):
By this amendment developer shall pay GST on supply of construction services to landowner not later than the date of issuance of completion certificate or first occupation whichever earlier.
b. Allowability of tax paid by developer as Credit when supply of Construction services by Landowner – Promoter to his buyer (Notification No 03/2019 Central Tax (Rate) dated 29th March 2019 and Notification 02/2021 Central Tax (Rate) dated 02-06-2021):
In addition to the above 1(b) inserted explanation (iii) to that proviso for taking credit of tax paid by developer for payment of tax on further supply by landowner to his buyer.
c. With this amendment developer can pay tax on supply of construction services supplied by developer to landowner before issuance of completion of certificate. He may ask developer to pay GST by paying it to developer and take credit of it without extra cash outflow.
Example: as per after provisions
A. Date of Issuance of completion certificate is 31-03-2023.
B. If Landowner transfers his portion of apartments before 31-03-2022.
C. Here Developer can pay GST on supply of Construction services to landowner before the tax period March 2023 i.e., before the tax period 31-03-2022. And landowner can take credit of tax paid by developer while discharging tax on sales made to his buyers.
D. In this case landowner taking credit of tax paid by developer. Hence there will not be any extra cost to landowner.
The following is the amended provision:
Registered persons, namely:-
(i) a promoter who receives development rights or Floor Space Index (FSI) (including additional FSI) on or after 1st April, 2019 for construction of a project against consideration payable or paid by him, wholly or partly, in the form of construction service of commercial or residential apartments in the project or in any other form including in cash;
(ii) a promoter, who receives long term lease of land on or after 1st April, 2019 for construction of residential apartments in a project against consideration payable or paid by him, in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name),
as the registered persons in whose case the liability to who shall pay central tax on, –
(a) the consideration paid by him in the form of construction service of commercial or residential apartments in the project, for supply of development rights or FSI (including additional FSI);
(b) the monetary consideration paid by him, for supply of development rights or FSI (including additional FSI) relatable to construction of residential apartments in project;
(c) the upfront amount (called as premium, salami, cost, price, development charges or by any other name) paid by him for long term lease of land relatable to construction of residential apartments in the project; and
(d) the supply of construction service by him against consideration in the form of development rights or FSI(including additional FSI), –
Shall arise on the date of issuance of completion certificate for the project, where required, by the competent authority or on its first occupation, whichever is earlier.
In a tax period not later than the tax period in which the date of issuance of the completion certificate for the project, where required, by the competent authority, or the date of its first occupation, whichever is earlier, falls.
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