Types of Real Estate Transactions: These are the following types of transactions which can take place in Real Estate Sector:

1. Supply of immovable properties (Commercial/ Residential) before completion.

2. Supply of immovable properties (Commercial/ Residential) after completion.

3. Sale of Land (Agricultural/ Commercial/ Residential).

4. Sale of rights arising out of land (e.g. TDR, FSI)

GST Rates on Real Estate till 31st March 2019

Affordable Housing Projects- 12% (before 1/3rd deduction towards land value) i.e. Effective Rate is 8% with Input Tax Credit

Other than Affordable Housing Projects- 18% (before 1/3rd deduction towards land value) i.e. Effective Rate is 12% with Input Tax Credit

GST rates on Real Estate

*Affordable houses means houses under the existing central and state housing schemes as mentioned in items(iv) and (v) of Entry 3 of  as mentioned in items (iv) and (v) of Entry 3 of Notification 11/2017-Central Tax (Rate) dated 28.06.2017 (such as Pradhan Mantri Awaas Yojana, Rajiv Awaas Yojana, Jawaharlal Nehru National Urban Renewal Mission or Housing for All etc.)

Particulars Applicability Rate of Tax Input Tax Credit
On ready-to-move (RTM) properties for which completion certificates are issued Not applicable – Because Sale of building is treated as activity or transaction which shall be treated neither as a supply of good nor a supply of service as per SCHEDULE III of CGST Act,2017 Not available
On Under Construction Properties (For Homes Purchased Under Credit-Linked Subsidy Scheme) Applicable as supply of services as per Schedule II of CGST Act, 2017 12% (effective Rate is 8% after cutting the 1/3rd amount towards the cost of land.) Available
On Under Construction Properties (Other than above) Applicable as supply of services as per Schedule II of CGST Act, 2017 18% (effective Rate is 12% after cutting the 1/3rd amount towards the cost of land.) Available
On resale properties Not applicable Not available
On Land purchase and sale Not applicable. As per Schedule III, sale of land is neither supply of goods nor services. Not available
Works contract Applicable 18% Available
Composite supply of works

Contract

Applicable 18% Available
Composite supply of works

Contract to Government Authorities

Applicable 12% Available
Composite supply of works contract – for use by general public Applicable 12% Available
Composite supply of works contract – Affordable Housing Applicable 12% Available

GST Rates on Real Estate on or after 01st April 2019

In the 33rd GST Council meeting dated 24.02.2019 following rates revision for residential apartments are recommended and which are finalized in 34th GST Council meeting dated 19.03.19 applicable from 01.04.2019 :

1. GST @ 1.5% (Effective rate 1% after deducting Land Cost) without ITC for affordable residential apartments.

2. GST @ 7.5% (Effective rate 5% after deducting Land Cost) without ITC for residential apartments other than affordable residential apartments.

3. GST @ 12% with ITC for commercial properties (other than specified ones which will attract GST @ 5%).

Definition of affordable residential apartment:

  • A residential house/flat of carpet area of up to 90 sqm in non‑metropolitan cities/towns and 60 sqm in metropolitan cities having value up to Rs. 45 lacs (both for metropolitan and non‑metropolitan cities).
  • 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.

*In case of ongoing projects new rates will be optional.

*As far as new projects are concerned, new proposed rates will be applicable thereon. New Projects means which commences after 31.03.2019.

Meaning of ongoing projects

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

  • Commencement certificate for the project, where required, has been issued by the competent authority on or before 31st March, 2019, and it is certified by a registered architect, chartered engineer or a licensed surveyor that construction of the project has started (i.e. earthwork for site preparation for the project has been completed and excavation for foundation has started) on or before 31st March, 2019.
  • 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 the project has started on or before the 31st March, 2019.
  • Completion certificate has not been issued or first occupation of the project has not taken place on or before the 31st March, 2019.
  • Apartments of the project have been, partly or wholly, booked on or before 31stMarch, 2019.

Option in respect of ongoing projects

One -time option (to be exercised once within a prescribed time frame) to continue to pay tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking have both started before 01.04.2019) and which have not been completed by 31.03.2019. The option shall be exercised once within a prescribed time frame (by 10th may, 2019) and where the option is not exercised within the prescribed time limit, new rates shall apply.

New rate of GST @ 1.5% (Effective rate 1% after deducting Land Cost) without input tax credit (ITC) on construction of affordable houses shall be available for:

  • all houses which meet the definition of affordable houses as decided by GSTC (area 90 sqm in non- metros /60 sqm in metros and value upto RS. 45 lakhs), and
  • affordable houses being constructed in ongoing projects under the existing central and state housing schemes (such as Pradhan Mantri Awaas Yojana or Housing for All etc.) presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).

New rate of GST @ 7.5% (Effective rate 5% after deducting Land Cost) without input tax credit shall be applicable on construction of :‑

  • All houses other than affordable houses in ongoing projects whether booked prior to or after 01.04.2019. In case of houses booked prior to 01.04.2019, new rate shall be available on instalments payable on or after 01.04.2019.
  • All houses other than affordable houses in new projects.
  • Commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

Impact on Transitional Credit for ongoing projects opting for the new tax rates:

With respect to transitional credits, the Press Release dated 19th March 2019 provides as under:

  • Ongoing projects (buildings where construction and booking both had started before 01.04.2019) and have not been completed by 31.03.2019 opting for new tax rates shall transition the ITC as per the prescribed method:-
  • The transition formula approved by the GST Council, for residential projects extrapolates ITC taken for percentage completion of construction as on 01.04.2019 to arrive at ITC for the entire project. Then based on percentage booking of flats and percentage invoicing, ITC eligibility is determined. Thus, transition would thus be on pro-rata basis based on a simple formula such that credit in proportion to booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.
  • For a mixed project transition shall also allow ITC on pro-rata basis in proportion to carpet area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 1.4.2019) to the total carpet area of the project.

Conditions for new tax rates:

The new tax rates of 1% (on construction of affordable) and 5% (on other than affordable houses) shall be available subject to following conditions :‑

  • Input tax credit shall not be available,
  • Atleast 80% of inputs and input services shall be purchased from registered persons. For calculating this threshold, the value of services by way of grant of development rights, long term lease of land, floor space index, or the value of electricity, high speed diesel, motor spirit and natural gas used in construction of residential apartments in a project shall be excluded.

On shortfall of purchases from 80%, tax shall be paid on input and input services by the builder @ 18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.

Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019:

The following treatment shall apply to TDR/ FSI and Long term lease for projects commencing after 01.04.2019:-

  • Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them. Exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses. This will achieve a fair degree of taxation parity between under construction and ready to move property.
  • TDR or FSI or long term lease of land used for construction of commercial apartments shall attract GST of 18%.
  • The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from land owner to builder under the reverse charge mechanism (RCM).
  • The date on which builder shall be liable to pay tax on TDR of land under RCM in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.
  • On FSI received on or after 1.4.2019, the promoter should discharge his tax liability on FSI as under:

1. In case of supply of FSI wherein consideration is in form of construction of commercial or residential apartments, liability to pay tax shall arise on date of issuance of Completion Certificate.

2. In case of supply of FSI wherein monetary consideration is paid by promoter, liability to pay tax shall arise on date of issuance of Completion Certificate only if such FSI is relatable to construction of residential apartments. However, liability to pay tax shall arise immediately if such FSI is relatable to construction of commercial apartments.

  • On long term lease (Premium) received on or after 1.4.2019, the promoter should discharge his tax liability on long term lease as under:

1. In case of supply of long term lease of land for construction of commercial apartments, tax shall be paid by the promoter immediately. However, for construction of residential apartment, liability to pay tax on the upfront amount payable for long term lease shall arise on the date of issuance of Completion Certificate.

  • The liability of builder to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion certificate.

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