GST Impact on Redevelopment of Residential Society – ‘A Glimpse’

1) Under redevelopment schemes, societies intents to undertake redevelopment of existing building owned by them and for that purpose they enter into Development Agreements with Developer.

2) In this scenario, Developer will undertake new construction on the plot of land, following demolishing existing building, and will offer flats to existing members of the Society without any consideration &additional flats in the new building will be sold by the Developer to independent buyers at market price.

3) Existing society members supposes that they must get flats free and they shall not be required to pay any money out of their pockets whether by way of GST, stamp duty or any other taxes. They expect Builder to pay all the taxes out of his share of sale to outsiders. Under these circumstances when existing members are told about additional GST on value of Development Rights, entire calculations about redevelopment start appearing unviable to those members, and also for developers.

4) Accordingly, inquiries are made by both societies and developer about impact GST will make on viability of the projects under redevelopment. In this respect following stated is Flow of Scheme & Calculations thereon to pursue better clarity.

Flow of Scheme

1) Transfer of Development Rights by Existing Society to Developer

2) Service of Construction Service (Units) by Developer to Existing Members of Society

3) Service of Construction Service (Units) by Developer to New Members

Important Notes:

1) On perusal of Notification No. 03/2019-CTR: According to Paragraph 2A. Where a registered person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, the value of construction service in respect of such apartments shall be deemed to be equal to the Total Amount charged for similar apartments in the project from the independent buyers, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above.”

2) On perusal of Notification No. 04/2019-CTR: According to Paragraph 1A. Value of supply of service by way of transfer of development rights or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.

3) On perusal of Notification No. 04/2019-CTR: According to Paragraph 1B. Value of portion of residential or commercial apartments remaining un-booked on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartments charged by the promoter nearest to the date of issuance of completion certificate or first occupation, as the case may be.

4) On perusal of Notification No. 04/2019-CTR: The promoter shall be liable to pay tax at the applicable rate, on reverse charge basis, on such proportion of value of development rights, or FSI (including additional FSI), or both, as is attributable to the residential apartments, which remain unbooked on the date of issuance of completion certificate, or first occupation of the project.

5) Further that tax payable in terms of the first proviso hereinabove shall not exceed 1% (CGST + SGST) of the value in case of affordable residential apartments and 5% (CGST + SGST) of the value in case of residential apartments other than affordable residential apartments remaining un- booked on the date of issuance of completion certificate or first occupation The liability to pay central tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise on the date of completion or first occupation of the project, as the case may be, whichever is earlier.

6) On perusal of Notification No. 05/2019-CTR: According to Sr. No. 5B, Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI)(including additional FSI) for construction of project by a promoter, such service falls under reverse charge mechanism and promoter stands liable to discharge the same.

Facts of Case:

On 1^stMay 2021, M/s ADS Realty LLP, Developer anticipates to acquire and redevelop existing society named M/s CAA Co-operative Society Limited and other details stands as under:

Sr. No.	Particulars	Option 1	Option 2	Option 3	Option 4
1	No. of Flats in Existing Society	42	42	42	42
2	No. of Flats after Redevelopment	84	84	84	84
3	Carpet Area per Flat after Redevelopment	1,900 sq. ft.	1,900 sq. ft.	1,900 sq. ft.	1,900 sq. ft.
4	Total Carpet Area after Redevelopment	1,59,600 sq. ft.	1,59,600 sq. ft.	1,59,600 sq. ft.	1,59,600 sq. ft.
5	Total Carpet Area after Redevelopment for Existing Members	79,800 sq. ft.	79,800 sq. ft.	79,800 sq. ft.	79,800 sq. ft.
6	Total Carpet Area after Redevelopment for New Members	79,800 sq. ft.	79,800 sq. ft.	79,800 sq. ft.	79,800 sq. ft.
7	Proposed Price per flat after Redevelopment to New Members nearest to date of entering Development Agreement	Rs 1,00,00,000	Rs 1,00,00,000	Rs 1,00,00,000	Rs 1,00,00,000
8	Price per sq. ft. [1,00,00,000 / 1,900 sq. ft.]	Rs 5,265 per sq.ft.	Rs 5,265 per sq.ft.	Rs 5,265 per sq.ft.	Rs 5,265 per sq.ft.
9	Date of Development Agreement	07th May 2021	07th May 2021	07th May 2021	07th May 2021
10	Booked Flats as on date of Completion Certificate for New Members	18	33	42	0
11	Un booked Flats on date of Completion Certificate for New Members	24	9	0	42
12	Un Booked sq. ft. on date of issuance of completion certificate	45,600 sq. ft.	45,600 sq. ft.	45,600 sq. ft.	45,600 sq. ft.
13	Proposed Price per flat after Redevelopment to New Members nearest to date of issuance of completion certificate	Rs 1,25,00,000	Rs 1,25,00,000	Rs 1,25,00,000	Rs 1,25,00,000
14	Price per sq. ft. [1,25,00,000 / 1,900 sq. ft.]	Rs 6,580 per sq.ft.	Rs 6,580 per sq.ft.	Rs 6,580 per sq.ft.	Rs 6,580 per sq.ft.

Determination of GST on Transfer of Development Rights (TDR)

(Under RCM – Developer liable to Pay)

Option 1

Formula:

= [GST Payable on TDR for construction of residential apartments] * [Carpet Area of un-booked Flats on the date of issuance of completion certificate] / [Total Carpet Area of residential apartments in project]

= [ Rs 5,265 per sq. ft. * 79,800 sq. ft * 18%] * [ 24 Flats * 1,900 sq. ft.] / [1,59,600 sq. ft.]

= [ Rs7,56,26,460] * [45,600 sq. ft.] / [1,59,600 sq. ft.]

= [ Rs2,16,07,560]

OR

= [ Price per sq. ft. * Un-booked sq. ft. * 5%]

= [ Rs 6,580 per sq. ft. * 45,600 sq. ft. * 5%]

= [ Rs 1,50,02,400]

The liability to pay GST on TDR shall not exceed GST payable on un-booked flats. Therefore, in the instant case, liability to pay GST on TDR shall be Rs 1,50,02,400.

Option 2

Formula:

= [GST Payable on TDR for construction of residential apartments] * [Carpet Area of un-booked Flats on the date of issuance of completion certificate] / [Total Carpet Area of residential apartments in project]

= [ Rs 5,265 per sq. ft. * 79,800 sq. ft * 18%] * [ 9 Flats * 1,900 sq. ft.] / [1,59,600 sq. ft.]

= [ Rs7,56,26,460] * [17,100 sq. ft.] / [1,59,600 sq. ft.]

= [ Rs81,02,835]

OR

= [ Price per sq. ft. * Un-booked sq. ft. * 5%]

= [ Rs 6,580 per sq. ft. * 17,100 sq. ft. * 5%]

= [ Rs 56,25,900]

The liability to pay GST on TDR shall not exceed GST payable on un-booked flats. Therefore, in the instant case, liability to pay GST on TDR shall be Rs 56,25,900.

Option 3

Formula:

= [GST Payable on TDR for construction of residential apartments] * [Carpet Area of un-booked Flats on the date of issuance of completion certificate] / [Total Carpet Area of residential apartments in project]

= [ Rs 5,265 per sq. ft. * 79,800 sq. ft * 18%] * [ 0 Flats * 1900 sq. ft.] / [159600 sq. ft.]

= [ Rs7,56,26,460] * [0 sq. ft.] / [159600 sq. ft.]

= [ 0]

OR

= [ Price per sq. ft. * Un-booked sq. ft. * 5%]

= [ Rs 6,580 per sq. ft. * 0 sq. ft. * 5%]

= [ Rs 0]

The liability to pay GST on TDR shall not exceed GST payable on un-booked flats. Therefore, in the instant case, liability to pay GST on TDR shall be Rs 0.

Option 4

Formula:

= [GST Payable on TDR for construction of residential apartments] * [Carpet Area of un-booked Flats on the date of issuance of completion certificate] / [Total Carpet Area of residential apartments in project]

= [ Rs 5,265 per sq. ft. * 79,800 sq. ft * 18%] * [ 42 Flats * 1900 sq. ft.] / [159600 sq. ft.]

= [ Rs 7,56,26,460] * [79,800 sq. ft.] / [159600 sq. ft.]

= [ Rs 3,78,13,230]

OR

= [ Price per sq. ft. * Un-booked sq. ft. * 5%]

= [ Rs 6,580 per sq. ft. * 79,800 sq. ft. * 5%]

= [ Rs2,62,54,200]

The liability to pay GST on TDR shall not exceed GST payable on un-booked flats. Therefore, in the instant case, liability to pay GST on TDR shall be Rs2,62,54,200.

Determination of GST on Construction Service to Existing Members (Developer’s Liability)

Option 1, Option 2, Option 3& Option 4

Formula:

= [ Price per sq. ft. to independent buyernearest to date of entering development agreement * Total Carpet Area offered to Existing Members after Redevelopment * GST Rate]

= [ Rs 5,265 sq. ft. * 79,800 sq. ft. * 5%]

= [ Rs 2,10,07,350]

Determination of GST on Construction Service to New Members before Completion Certificate (Developer’s Liability)

Option 1

Formula:

= [ Price per sq. ft. to independent buyer * Carpet Area offered to New Members after Redevelopment per flat * Booked Flats on date of Completion Certificate * GST Rate]

= [ Rs 5,265 sq. ft. * 1,900 sq. ft. * Booked 18 flats * 5%]

= [ Rs 90,03,150]

Option 2

Formula:

= [ Price per sq. ft. to independent buyer * Carpet Area offered to New Members after Redevelopment per flat * Booked Flats on date of Completion Certificate * GST Rate]

= [ Rs 5,265 sq. ft. * 1,900 sq. ft. * Booked 33 flats * 5%]

= [ Rs 1,65,05,775]

Option 3

Formula:

= [ Price per sq. ft. to independent buyer * Carpet Area offered to New Members after Redevelopment per flat * Booked Flats on date of Completion Certificate * GST Rate]

= [ Rs 5,265 sq. ft. * 1,900 sq. ft. * Booked 42 flats * 5%]

= [ Rs 2,10,07,350]

Option 4

Formula:

= [ Price per sq. ft. to independent buyer * Carpet Area offered to New Members after Redevelopment per flat * Booked Flats on date of Completion Certificate * GST Rate]

= [ Rs 5,265 sq. ft. * 1,900 sq. ft. * Booked 0 flats * 5%]

= [ Rs 0]

Summary:

Sr. No.	Particulars	Option 1	Option 2	Option 3	Option 4
1	GST payable on TDR (RCM)	Rs 1,50,02,400	Rs 56,25,900	Rs 0	Rs 2,62,54,200
2	GST on Construction Service to Existing Members – 42 Flats	Rs 2,10,07,350	Rs 2,10,07,350	Rs 2,10,07,350	Rs 2,10,07,350
3	GST on Construction Service on Booked Flats as on date of Completion Certificate for New Members – 18 / 33 / 42 / 0 Flats	Rs 90,03,150	Rs 1,65,05,775	Rs 2,10,07,350	Rs 0
4	Total Payable	Rs 4,50,12,900	Rs 4,31,39,025	Rs 4,20,14,700	Rs 4,72,61,550

After a lengthy exercise, one will be well positioned to determine the aggregate amount of GST outflow for the aforesaid redevelopment project and contemplates appropriately. Here, it is assumed that, procurement of goods & services for this project is from registered person.