GST  REAL ESTAE TRANSACTION:-

In this Article We will discuss here mainly GST implication on Affordable housing Scheme (AFS) and other than Affordable housing Scheme (AFS) in Real Estate Sector.

A number of issues have been raised and taxpayers have different opinion regarding the new GST rate structure notified for real estate sector effective from 01-04-2019.

A compilation of Frequently Asked Questions (FAQs) based on clarification issued by CBIC (Link-  https://www.cbic.gov.in/resources//htdocs-cbec/gst/FAQ-Real-estate-sector-0705.pdf )  is explained here for easy understanding of Taxpayers:-

We will discuss here mainly GST implication on Affordable housing Scheme (AFS) and other than Affordable housing Scheme (AFS).

Real Estate

Q.1 What is a Residential Real Estate Project?

Ans: A “Residential Real Estate Project” (RREP) means a „Real Estate Project” in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the project.

Q.2 What is an affordable residential apartment?

Ans: Affordable residential apartment is a residential apartment in a project which commences on or after 01-04-2019, or in an ongoing project in respect of which the promoter has opted for new rate of 1% (effective from 01-04-2019) having

i) carpet area upto 60 square meter in metropolitan cities and 90 square meter in cities or towns other than metropolitan cities and

ii) the gross amount charged for which, by the builder is not more than 45 lakhs rupees.

(Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with their geographical limits prescribed by Government.)

Q.3 What is an on-going  project?

Ans: A project which meets the following conditions shall be considered as an ongoing project.

(a) Commencement certificate for the project, where required, has been issued by the competent authority on or before 31stMarch, 2019, and it is certified by a registered architect, chartered engineer or a licensed surveyor that construction of the project has started on or before 31st March, 2019.

(b) Where commencement certificate in respect of the project, is not required to be issued by the competent authority, it is to be certified by any of the authorities specified in (a) above that construction of theproject has started on or before the 31st March, 2019.

(c) Completion certificate has not been issued or first occupation of the project has not taken place on or before the 31st March, 2019.

(d) Apartments of the project have been, partly or wholly, booked on or before 31/03/2019.

Q.4 What are the rates of GST applicable on construction of residential apartments?

Ans: With effect from 01-04-2019, effective rate of GST applicable on construction of residential apartments by promoters in a real estate project are as follows:-

Particulars Effective rate of GST (after considering deduction of value of land)
Construction of affordable residential apartments 1% without ITC on total consideration. 
Construction of residential apartments other than AFS 5% without ITC on total consideration.

In above table Rates given are Net  after Considring  value of land. Means if we have to opt 1% or 5% tax rate as per new guidelines then we have not allowed to deduct value of land (i.e. 1/3rd  Portion) out of total consideration received.

We can take an example for better understanding:-

ABC land developers received consideration of Rs. 10 Lakh for selling out of a Flat under Affordable housing Scheme (AFS) then GST liability of ABC land developers is 1% of total Consideration i.e. 10000 without claiming any Input tax Credit.

Actually Govt. Want 1.5%  and 7.5% tax on Value of Supply and after considering value of Land Portion (i.e. 1/3rd  Portion) effective tax rate is 1% and 5% respectively.

So in above example if we have to calculate value of supply after deduction of land portion (because there is no GST on sale of land) our taxable value is 10 lakh – 1/3rd of 10 Lakh = 6,66,667/- and GST at the rate of 1.5% is 10000 which is same as per first calculation.

So finally we have to pay 1% GST on total Consideration.

(However, in case of on-going project, the promoter has an option to pay GST at the old rates, i.e. at the effective rate of 8% on affordable residential apartments and effective rate of 12% on other than affordable residential apartments and, consequently, to avail permissible credit of inputs taxes; in such cases the promoter is also expected to pass the benefit of the credit availed by him to  the purchaser.)

Q.5 Is any Condition applicable for opting of new scheme?

Ans: the new rates (1% and 5%) are subject to fulfillment of following 2 conditions:

(a) Input tax credit shall not be available to taxpayers and;

(b) 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80%, tax shall be paid by the builder @ 18%(95 CGST+ 9% SGST) on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @ 28% (14% CGST + 14% SGST) under RCM, and on capital goods under RCM at applicable rates.

Q.6 Does a promoter or a builder has option to pay tax at old rates of 8% & 12% with ITC?

Ans: Answer is YES in case of on- going projects. But in that case the promoter/ builder has to exercise one time option with jurisdictional Commissioner.

However, in case where a promoter or builder does not exercise option in the prescribed form, it shall be deemed that he has opted for new rates in respect of ongoing projects and accordingly new rate of GST i.e. 1% / 5% shall be applicable and all the provisions of new scheme including transitional provisions shall be applied.

There is no such option available in case of projects which commence on or after 01.04.2019. Construction of residential apartments in projects commencing on or after 01.04.2019 shall compulsorily attract new rate of GST @ 1% or 5% without Input Tax Credit.

Q.7 Is new Scheme is also available for construction of commercial apartments [shops, godowns, offices etc.] in a real estate project?

Ans: No, different provision for the same is as under:-

Type of Property Effective rate of GST (after considering deduction of value of land)
Construction of commercial apartments in a Residential Real Estate Project (RREP)

which commences on or after 01-04-2019 or in an ongoing project in respect of which the promoter has opted for new rates effective from 01-04-2019

5% without ITC on total consideration
Construction of commercial apartments in a Real Estate Project (REP) other than Residential Real Estate Project (RREP) or in an ongoing project in respect of which the promoter has opted for old rates 12% with ITC on total consideration

Q.8 I am planning to purchase an apartment in a newly launched project. The project has been launched after 31.03.2019 by XYZ Developers at Noida. Price of the apartment having carpet area of 80 sqm is 48 lakhs. What is the rate of GST applicable on construction of this apartment?

Ans: 1. The tax rate applicable on construction of the apartments in a project that commences on or after 01.04.2019 would be 5%.

2. 9 Whether the option to pay tax at the applicable effective rate of 12% or 8% (with ITC) is available to the Promoter in respect of the New Project, which has been commenced on or after 1st April 2019?

3. No, there is no option to pay tax at the effective rate of 12% or 8% with ITC on construction of residential apartments in projects which commences on or after 01-04-2019.

Q.10 Can a Promoter  opt for old rates or new rates, as the case may be, for different projects being undertaken by him under the same entity?

Ans: Yes.The option to pay tax on construction of apartments in the ongoing projects at the effective old rates of 8% and 12% with ITC has to be exercised for each ongoing project separately. As per RERA, 2016, project wise registration is allowed. So, the promoter may exercise different options for different ongoing projects being undertaken by him

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Qualification: CA in Job / Business
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Location: Jaipur, Rajasthan, IN
Member Since: 24 May 2020 | Total Posts: 1

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2 Comments

  1. Diwas1995 says:

    Dear writer

    I have a question that – if we opt for that 8% and 12% for ongoing project as per the said notification or faqs then what is the definition of affordable housing because as per the notification affordable housing has only been defined for the new regime or deemed new regime if the option hasn’t been taken.

    so affordable housing then mean for ongoing project will be old affordable housing definition??
    if yes what is that definition pl explain sir.

    1. krishanmehta says:

      Dear sir
      definition of affordable housing is same in old & new regime both.
      govt. by the new notification has reduced GST burden only.

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