GST on Real Estate – A Handy notes for Professionals

ii)   Immovable property is, therefore, not goods and as such its supply is not subject to GST as ‘goods’.

Refer – Schedule II, III

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’.

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.

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.

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.

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,

Affordable Housing

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%.

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.

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.

On-going project

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.

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.

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.

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. 

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.

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.

 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.

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.

Department of Revenue (Tax Research Unit)

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.

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.

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. 06/2019- Central Tax (Rate) dated 29th March, 2019

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.

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;