Article explains Classification of Transactions under Real Estate for GST, Whether it is Supply of goods, Whether it is Supply of Service, Transitional Transaction under Real Estate, Rate of Tax on Transactions under Real Estate – Up to 31.03.2019, Rate of Tax after 01.04.2019 on Transactions under Real Estate, Input Tax Credit prior to 31.03.2019, Input Tax Credit w.e.f. 01.04.2019, Person Liable to pay GST, Point of Taxation – Development Rights, Point of Taxation – TDR, Point of Taxation – FSI (additional FSI), Point of Taxation – Long Term Lease, Up Front Fees on Long Term Lease and Value of Construction services.
|Classification of Transactions under Real Estate|
|Whether it is goods||i) No, as Buildings, Lands etc are non-movable, we cannot call it as “Goods”
ii) Immovable property is, therefore, not goods and as such its supply is not subject to GST as ‘goods’.
|Goods Means “every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and other things attached to or forming part of land which are agreed to be severed before supply or under a contract of supply”.|
|Whether it is Service||i) ‘Services’ are broadly defined as anything other than goods. Then as it is not goods then whether it will be Service.
Refer – Schedule II, III
|Schedule II – In relation to ‘Land and building’, item 5 specifies the activity of construction of complex etc. as service, subject to certain conditions.|
|ii) Sale of Land: – “Being neither goods nor service, sale of land is outside the GST tax net.”||Schedule III- Item 5 of the list of such activities mentions ‘sale of land’. Not finding a place in Schedule II and specific mention in Schedule III, makes it abundantly clear that sale of land is not service also.|
|iii) Building: –
a) Before getting Completion Certificate of First Occupation: – supply of under- construction building amounts to supply of service and hence subject to GST.
b) After getting Completion Certificate of First Occupation: – whereas the supply of a completed building is outside the GST net, falling neither within ‘goods’ nor ‘service’.
|Schedule II, in item 5 mentions as service, “the construction of a complex, building, civil structure or a part thereof, except where the entire consideration has been received after issuance of completion certificate, where required, or after its first occupation, whichever is earlier”.
The Act does not clarify the term ‘first occupation’ which remains a fact-finding exercise based on the evidence of genuine occupation, as a fact.
|iv) Service of Construction: –
Activity of mere construction which does not involve transfer of property in goods is not ‘works contract service’ and is termed as ‘Job-work’ service.
|‘Works contract service’ – a contract for building, construction fabrication etc. of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
Activity of mere construction which does not involve transfer of property in goods is not ‘works contract service’ and is termed as
|Transitional Transaction||In case the transaction was made by way of allotment prior to 1st July, 2017 when GST became applicable, and part consideration was received prior to this date, the part payment so made will be subjected to Service Tax and VAT as applicable at that time. But consideration received after 01.07.2017 will attract GST and be subject to tax at effective rate of 12% or 8% after input tax credit.|
|Rate of Tax – Up to 31.03.2019||Regular Rate
taxed at 18% on the value of consideration received.
abatement equal to 1/3rd of total consideration is allowed in respect of the value of land included in the total consideration,
the tax is chargeable at 12% which, after abatement of 1/3 of the value, is reduced to the effective rate of 8%.
Construction of Houses/Apartment
construction work is assigned to a contractor on the contractee’s land, the contractor renders works contract service taxable at 18% without any abatement for land.
Ready Possession Houses
the ready to move houses in respect of which completion certificate has been issued or which are occupied are not taxable if the entire consideration is paid after the issue of Completion Certificate or after first occupation, whichever is earlier.
TDR/FSI/Long Term Lease
TDR or FSI or long-term lease of land used for construction of commercial apartments shall attract GST of 18%.
|Abatement results in the net chargeable tax on 2/3rd of the applicable rate of 18%, which works out to be the effective rate of 12%.
For Affordable Housing rate is applicable to homes purchased under specified schemes.
A suggestion is sometimes mooted to make separate sale agreements for the land portion and for construction thereon. Any such attempt is not likely to be acceptable to the department as the construction service is supplied simultaneously with the land and is inextricably linked to the supply of land, even when it is under separate agreements.
|Rate of Tax after 01.04.2019||Broad Types of Real Estate Projects
a) Residential Real Estate Project (RREP)
i) Construction of affordable residential apartments: – 1% without ITC on total consideration.
ii) Construction of residential apartments other than affordable residential apartments: – 5% without ITC on total consideration.
b) Real Estate Project
12% with ITC on total consideration.
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 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.
(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 the project 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 31st March, 2019.
c) TDR or FSI or long-term lease of land used for construction of commercial apartments in the new projects where new rate of 1% or 5% is applicable.
|The GST Council in its 34th meeting made far reaching recommendations which were accepted and notified vide Notification No. 3/2019-(rate) dated 29th March, 2019.
An option is available in the case of an ongoing project. In case of such a project, the promoter or builder has option to pay GST at old effective rate of 8% and 12% with ITC.
To continue with the old rates, the promoter/ builder has to exercise one-time option in the prescribed form and submit the same manually to the jurisdictional Commissioner by the 10th of May, 2019 (subsequently was revised to 20th May, 2019 by Notification no. 10/2019 – CT (rate).
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
“Residential Real Estate Project (RREP) has been defined in the notification to mean a REP 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 REP.
Affordable residential apartment: – “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 carpet area up to 60 square meter in metropolitan cities and 90 square meter in cities or towns other than metropolitan cities and the gross amount charged for which, by the builder is not more than forty five 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.
The term “affordable residential apartment” shall have the same meaning as assigned to it in the notification No. 11/2017-Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number 690(E) dated 28th June, 2017, as amended.
|Input Tax Credit prior to 31.03.209||ITC is available in respect of supply of under-construction apartments which are subject to tax, but the same is not available in respect of ready to move apartments where the entire consideration is payable after the issue of Completion Certificate or after its first occupation, as they are not taxable.|| Input tax credit is available in respect of the tax payable and accordingly, no credit can be claimed in respect of supplies which are not taxable.
If inputs are used partly for effecting taxable supplies, including zero-rated supplies, and partly for exempt supplies, input tax credit shall be restricted to so much of input tax as is attributable to taxable supplies.
|Input Tax Credit w.e.f 01.04.2019||Input Tax Credit is not available in respect of supply of residential units in projects commencing from 01.04.2019 and supply in ongoing residential project after 01.04.2019 where the developer- promoter does not opt for continuing with the old regime of 8% and 12% in respect of affordable and non-affordable apartments respectively.
After the Completion Certificate is received, the developer is left with unsold inventory which is sold after the Completion Certificate and hence not subjected to GST, therefore ITC attributable to inventory sold after Completion certificate will have to be reversed.
The input credit is available if the inputs are used for further supply of works contract services. In other words, if construction was done for end use and not for sale, the credit will not be available. E.g. ITC on Construction of building by school will not be available to the school for setting off against the liability of the School.
|There may be situations where the goods or services procured are used for construction for sale as well as construction for non-business purpose.
The method of working the attributable tax is as per Rule 42 for goods and services and Rule 43 for capital goods.
The benefit of input tax credit by way of reduction in tax liability is required to be passed on to the buyers in the form of reduction in the price to ensure such reduction mechanism, which is covered under Anti-Profiteering clause where Authority has been created to check these transactions.
|Person Liable to pay GST|| Tax is payable by the service provider and not the service receiver,
A developer/promoter procuring less than 80% inputs from registered persons is required to pay tax on the shortfall under RCM at the prescribed rate,
in case purchase of TDR/FSI/Development rights from a land owner the developer will have to pay GST under RCM,
On construction services, it is the obligation of the builder/developer to collect GST from the buyers or pay the tax on reverse charge basis, wherever such liability exists.
|Promoter has to pay GST @ 18% on reverse charge basis on all such inward supplies (to the extent short of 80% of inward supplies from registered supplier) except cement on which tax has to be paid (by the promoter on reverse charge basis) at the applicable rate, which at present is 28% (CGST 14% + SGST 14%)|
|Point of Taxation – Development Rights||When is the supply deemed to have taken place in reference to real estate transactions?
Notification No.04/2018- CGST(Rate) dated 25.01.2018 deferred the time of supply for registered builder and the landowner in transactions of the following nature
a) liability to GST in respect of supply of construction services provided to the landowner and also, in respect of transfer of development rights granted to the builder shall arise at the time of transfer of possession or the right in the constructed building, complex, or civil structure by entering into a Conveyance Deed or similar instrument (for example allotment letter).
b) 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 un-booked on the date of issuance of completion certificate, or first occupation of the project, as the case may be.
|GST is chargeable at the point of supply of services, Section 13 of the CGST Act provides that the time of supply will be the earliest of:
i) The date of issue of invoice by the supplier, if issued within time i.e. within a period of 30 days from the date of supply or the date of receipt of payment, whichever is earlier; or
ii) The date of provision of service, if the invoice is not issued within the time as per (i) above; or
iii) The date on which the recipient shows the receipt of service, in his books of accounts, in case (i) and(ii) do not apply.
– Tax payable on RCM in terms of the first proviso hereinabove shall not exceed 0.5 per cent. of the value in case of affordable residential apartments and 2.5 per cent. 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.
|Point of Taxation – TDR||The liability to pay GST on development rights shall arise on the date of completion or first occupation of the project, whichever is earlier. Therefore, the promoter shall be liable to pay tax on reverse charge basis, on the supply of TDR on or after 01-04-2019, which is attributable to the residential apartments that remain un-booked on the date of issuance of the completion certificate, or first occupation of the project.||F. No. 354/32/2019-TRU Government of India Ministry of Finance
Department of Revenue (Tax Research Unit)
|Point of Taxation – FSI (additional FSI)||On FSI received on or after 1.4.2019, the promoter should discharge his tax liability on FSI as under:
i) 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.
ii) In case of the supply of FSI wherein monetary consideration is paid by promoter, liability to pay tax shall arise on the date of issuance of Completion Certificate only if such FSI is relatable to the construction of residential apartments.
However, liability to pay tax shall arise immediately if such FSI is relatable to construction of commercial apartments.
|Notification No. 05/2019- Central Tax (Rate) dated 29th March, 2019 F. No. 354/32/2019-TRU Government of India Ministry of Finance Department of Revenue (Tax Research Unit)|
|Point of Taxation – Long Term Lease||On long term lease received on or after 1.4.2019, the promoter should discharge his tax liability on long term lease as under:
In case of a supply of long-term lease of land for construction of commercial apartments, the tax shall be paid by the promoter immediately.
However, for construction of residential apartments, liability to pay tax on the upfront amount payable for long term lease shall arise on the date of issuance of Completion Certificate.
|F. No. 354/32/2019-TRU Government of India Ministry of Finance Department of Revenue (Tax Research Unit)|
|Up Front Fees on Long Term Lease||The liability to pay tax on Long term lease of land (30 years or more) received against consideration in the form of the upfront amount and the periodic license fee is on the promoter.
The promoter has to discharge tax liability on the same on the RCM basis.
However, the upfront amount payable for the long-term lease (known as premium, salami, cost, price, development charges etc.) is exempt to the extent it is used for the construction of residential apartments that are booked before issuance of completion certificate or first occupation.
Annual/ monthly rent or license fee payable for long term lease is taxable under GST.
|Notification No. 05/2019- Central Tax (Rate) dated 29th March, 2019|
|Value of Construction services||Construction Service is provided free of charge, as a
Consideration against the land or development right which is acquired by the builder in the Development agreement.
the usual method adopted is to take the open market value of similar units sold by the developer or
to adopt the value of units given to the landowner/ society on the basis of the transactional value of the free sale units sold nearest to the time of the agreement.
Note: – Prior to 01.04.2019 the GST charged by the developer-promoter used to be available with landowner/ promoter as ITC which may be utilized by the landowner-promoter for payment of GST on sale of such flats to outsiders but after 01.04.2019 there is no tax to be paid by the landowner-promoter as it will be paid by promoter/ builders.
|Section 15 of the CGST Act provides that the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both, where the supplier and the recipient of the supply are not related, and the price is the sole consideration for the supply.
Rule 27: – Where transaction value is can not be determined wholly in monetary terms then value of supply shall be:
i) be the open market value of such supply;
ii) if the open market value is not available, be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;
iii) if the value of supply is not determinable under(i) and (ii)
iv) above, be the value of supply of goods or services or both of the
like kind and quality;