GST on Real Estate – A Ready Reckoner on Recent Changes

Source of Below Article is  GST ON REAL ESTATE- A Ready Reckoner on Recent Changes by  RANGA REDDY GST COMMISSIONERATE, OFFICE OF THE CHIEF COMMISSIONER OF GOODS & SERVICES TAX AND CUSTOMS, HYDERABAD ZONE, GST Bhavan, L.B. Stadium Road, Basheerbagh, Hyderabad – 500 004. 

The book on “GST on Real Estate a Ready Reckoner on Recent Changes” was released by former Supreme Court Judge, Justice Jasti Chalameswar .

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Article covers salient features of new tax structure recommended for real estate sector, i.e, construction service. It discusses the applicability of GST on various projects depending on nature of the project (REP, RREP). It also discusses the taxability based on the progress of construction (on going project, new project). Precisely, this book covers the applicable GST on residential, commercial constructions, affordable housing and the guidelines and requisite conditions as envisaged in Notifications Nos. 03/2019-CTR to 08/2019-CTR (all dated 29.03.2019). However, this book does not discuss the taxability of Works Contract Service.

1. TAX STRUCTURE BEFORE AND AFTER 1^ST APRIL, 2019

S.No.	Type of service	Rate of tax	Whether eligible for ITC
1	Before 1st April, 2019
a.	Construction of Normal Apartment	12%	Yes
b.	Construction of Affordable Apartment	8%	Yes
2	On or after 1st April, 2019
a.	Construction of Normal Apartment	5%	No
b.	Construction of Affordable Apartment	1%	No
c.	Construction of Commercial in “other than RREP”	12%	Yes

Before going deep into the taxability or otherwise of the Real Estate Projects, let‟s try to understand certain concepts relating to Real Estate Sector.

From the above, it can be understood that the features that distinguish old tax structure from new tax structure are; change in the tax rates and facility to avail ITC. Each tax structure is having its own advantages. New tax structure, for instance, provides for reduced tax rates, old one, on the other hand, allows a builder to avail ITC. Based on the progress of the construction and ITC availed/to be availed, sometimes it may be beneficial for an ongoing project to continue with the old tax structure. Keeping this in view, the facility of choosing old tax structure is still provided to the builders of ongoing project, while such facility is not available to those projects which commence on or after 1st April, 2019 (“new project”, in short). It is, thus, pertinent to know the definition of ongoing project.

1.1 Ongoing Project vs New Project:

Broadly speaking, an ongoing project is nothing but a project which has commenced on or before 31^st March,2019. However, in addition to its commencement, it should meet all the following conditions:

(a) commencement certificate in respect of the project, where required to be issued by the competent authority, has been issued on or before 31st March, 2019, and it is certified by any of the following that construction of the project has started on or before 31st March, 2019:-

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority.

(b) where commencement certificate in respect of the project, is not required to be issued by the competent authority, it is certified by any of the authorities specified in sub–clause (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 being constructed under the project have been, partly or wholly, booked on or before the 31st March, 2019 i.e. (i) part of supply of construction of which has time of supply on or before the 31st March, 2019 and (ii) at least one installment has been credited to the bank account of the registered person on or before the 31st March, 2019 and (iii) an allotment letter or sale agreement or any other similar document evidencing booking of the apartment has been issued on or before the 31st March, 2019.

As seen from above, a project which has met all the above conditions is called an on going project.

Also, Check out this how to calculate gst in india

1.1.1 What is meant by booking of apartment partly or wholly:

In order to understand this condition, one should understand what an apartment is. Since the new guidelines have been framed based on the provisions of Real Estate (Regulation and Development) Act, 2016 (16 of 2016) (“RERA Act, 2016”, in short), apartment has the meaning as assigned to it in the said Act. As per Section 2(e) of said Act –

“apartment” whether called block, chamber, dwelling unit, flat, office, showroom, shop, go–down, premises, suit,

tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or go–down or for carrying on any business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified.

Note: In common parlance, an apartment is treated as a structure consisting of more than a flat. However, as per the provisions of RERA Act, 2016, any construction viz: construction of flats, villas, independent houses, shops, offices is to be treated as Apartment. Hence, an apartment need not necessary be a construction of flats

Hence, in case the project is construction of a residential apartment, atleast one flat shall have been booked on or before 31st March, 2019. Similarly, if a project consists of independent houses, atleast one house shall have been booked.

1.1.2 How to understand whether the construction has started:

Construction of a project shall be considered to have started on or before the 31st March, 2019, if the earthwork for site preparation for the project has been completed and excavation for foundation has started on or before the 31st March, 2019

1.1.3 What is commencement Certificate :

“Commencement certificate” means the commencement certificate or the building permit or the construction permit, by whatever name called issued by the competent authority to allow or permit the promoter to begin development works on an immovable property, as per the sanctioned plan;

Based on the above, a check list is prepared as under, for ease of understanding whether a project is ongoing or not:

Sl. No.	Activity taken place on or before 31st March, 2019	Yes /No
1	Commencement certificate/building permission has been granted
2	The same is certified by architect / chartered engineer / Licenced Surveyor
3	Site preparation for construction was completed
4	Excavation for foundation has started
5	At least a flat has been booked
6	Builder has entered into an agreement with the buyer
7	Builder has received some advance into his bank account
8	Builder has tax liability/time of supply
9	Completion certificate has not yet been issued.

In case, the answer to all the nine activities listed above is “yes”, then only the project is to be treated as an ongoing project.

Now, let‟s try to understand the concept with a simple illustration:

Illustration

M/s. ABC Builders are constructing residential apartments in Hyderabad. They have received necessary permission from GHMC authorities before 31st March, 2019 to construct the said apartments. Earthwork has been completed and excavation has commenced before 31st March, 2019. A flat was booked before 31st March, 2019 in respect of which M/s. ABC Builders have entered into an agreement and the buyer has paid some advance to the bank account of the builder and thus, builder has the tax liability before 31st March, 2019. Since the construction has not yet completed, no completion certificate was issued by the competent authority.

Since all the conditions have met, the above project is an ongoing project.

1.2 Importance of ongoing Project:

If the project is an ongoing project, the builder has the option to choose between old tax rates and new tax rates. If anyone of the above conditions is not met, then it cannot be treated as an ongoing project and such builders do not have the option to choose the old tax rates.

1.3 Other than Ongoing Project (new project):

Projects which are not qualified as “ongoing projects” shall be treated as Projects which commences on or after 1st April, 2019. In respect of these projects, no such option is available to choose the old tax rates. In other words, builder, has to invariably adopt the new tax rates and follow the guidelines specified there under.

1.4 Why to choose old tax rates:

Though the new tax rates are lower than the old ones, the builder opting the old tax structure is having the facility for availing ITC. In respect of certain projects, it may be beneficial to continue with the said facility of ITC though tax rate is high. Those who are changing from old tax structure to new have to forego the benefit of ITC besides requiring to reverse the ITC based on the conditions specified in notification No.03/2019-CTR. (Still it may be beneficial in some cases to shift to new tax structure.) Hence, the option to choose old rates is provided to ongoing projects.

1.5 How to opt for old tax rates:

The promoter who intends to opt for old tax rate has to comply with the following conditions:

i. The project shall qualify as an ongoing project

ii. Option has to be given separately for each project, in case, there are more than one project

iii. He has to submit the option to the jurisdictional Commissioner before 20^th May, 2019 in Annexure-IV specified in Notification No.3/2019-CTR

Few examples:

a) Project A has commenced before 31^st March, 2019 and it has sold few flats. However, no advances were received in respect of such flats.

b) Project B has applied for permission and based on the same the promoter has started bookings and received advances. However, earth work for site preparation has not yet started.

So, as mentioned above, project A and project B do not qualify as ongoing projects as some of the conditions specified are not satisfied. Hence, the builders of a) and b) above have to follow the new tax structure .

1.6 What if no option is given?

In cases where Annexure-IV is not furnished by the builder, It shall be deemed that the builder is following new tax structure.

2. REAL ESTATE PROJECT (REP) and REAL ESTATE RESIDENTIAL PROJECT (RREP) :

Real Estate Project (REP) has the meaning assigned to it section 2(zn) of RERA Act, 2016 as per which (zn) “real estate project” means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto;

From the above, it can be understood that any type of construction meant for residential or commercial use falls under the definition of REP.

The term “Residential Real Estate Project (RREP)” shall mean an REP in which the carpet area of the commercial apartments is not more than 15 percent of the total carpet area of all the apartments in the REP.

Let us see an illustration to understand the concept properly.

Illustration

XYZ developers are constructing a project consisting of residential apartments, shops and office spaces. The total carpet area of the project, i.e., REP is 1,00,000 square feet (sft.) out of which the carpet area earmarked for shops is 8000 sft., and that of offices is 6000 sft. Total carpet area of commercial space is 14000 sft., or 14%.

Since, the carpet area allocated for commercial space is less than 15%, the project can be termed as RREP. If the same is more than 15%, then it is other than RREP.

Note: In FAQs and various references issued by the Board, the term/phrase “other than RREP” is often referred to as “REP”.

To understand the tax structure, the project has to be categorized into RREP or other than RREP. Based on the same, the tax structure shall be as under:

Sl. No	Description of construction	Type	Applicable Tax	Weather ITC eligible
1	AFFORDABLE	RREP	1%	No
2	NORMAL	RREP	5%	No
3	COMMERCIAL	RREP	5%	No
4	AFFORDABLE	OTHER THAN RREP	5%	No
5	NORMAL	OTHER THAN RREP	5%	No
6	COMMERCIAL	OTHER THAN RREP	12%	Yes

The above rates are applicable in situations where the builder has not opted for old tax rates (Refer Notification No.3/2019-CTR, dt. 29^th March, 2019).

2.1 Distinguishing feature – RREP Vs other than RREP:

It can easily be identifiable from the above table that the rate of tax and conditions specified therein are similar in respect of normal and affordable housing. However, in respect of commercial apartments the tax payable in RREP is 5% while that of “other than RREP” is 12% (with a facility to avail ITC). However, builder has to follow the procedure laid down under Rule 42 of CGST Rules, 2017 and reverse the ineligible credit.

3. NEW TAX STRUCTURE – GUIDELINES

The following conditions are applicable project wise, in case, the project is a fresh project or the promoter has not chosen old tax rate in respect of an ongoing project.

a) Tax shall be paid by debiting the cash ledger: the applicable tax of 5%/ 1% shall be paid through cash only.

b) Not eligible for input tax credit subject to certain exceptions: the promoter has to follow the procedure laid down under Annexure-I in the case of other than RREP and Annexure-II in the case of RREP ( refer Notification NO. 03/2019-CTR) . Based on the outcome, the promoter has to reverse the credit. In case, the promoter is not having sufficient balance in his credit ledger, he has to pay the differential amount through cash. In such cases where, the final result of Annexure-I/II gives negative value, the promoter is allowed to take fresh credit on the inputs received on or after 1^st April, 2019. However, the same shall not be utilized for discharging his tax liability of 5% or 1% .

c) 80% of value of input and input services should be received from registered supplier:

In each project, the promoter has to procure supplies at least to an extent of 80% of the value of input and input services from a registered supplier in any given financial year or up to the date of issuance of completion certificate or its first occupation. Wherever in a financial year or at the time of completion certificate/its first occupation (whichever is earlier), such 80% threshold is not met, tax has to be paid by the builder on shortfall @ 18%.

d) Notwithstanding the above, in cases where cement is purchased from unregistered supplier (URD), the builder shall be liable to pay tax at applicable rates, i.e.,28 % at present. The same has to be paid month-wise

Let‟s see few illustrations to understand the condition of 80%in detail:

1. Examples for 80% fulfillment:
(total value of inputs – 100 lacs)

Sl. No.	Name of input	From registered dealer (in lacs)	From registered URD (in lacs)
1	Sand	10
2	Steel	20
3	Cement		15
4	Bricks	15
5	Tiles	10
6	Paints	5
7	Sanitary ware	25

Total purchases from registered dealer is Rs 85 Lacs. Though first condition of 80% is fulfilled, the second condition of procuring cement from registered dealer (RD)is not fulfilled. Hence, he has to pay tax @ 28% on cement.

2. Examples for 80% fulfillment:
(total value of inputs – 100 lacs)

Sl. No.	Name of input	From registered dealer (in lacs)	From registered URD (in lacs)
1	Sand	10
2	Steel	20
3	Cement	15
4	Bricks		15
5	Tiles	10
6	Paints		5
7	Sanitaryware	25

Total purchases from Registered dealer is Rs 80 Lacs. Even cement was procured from RD. No need to pay any tax.

3. Examples for 80% fulfillment:
(total value of inputs – 100 lacs)

Sl. No.	Name of input	From registered dealer (in lacs)	From registered URD(in l acs)
1	Sand	10
2	Steel	20
3	Cement		15
4	Bricks		15
5	Tiles	10
6	Paints		5
7	Sanitaryware	25

Total purchases from Registered dealer is Rs 65 Lacs. If he pays tax on cement, it comes to 80 lacs. Hence, he has to pay tax on 15 lacs @ 28%.

Note to builders: To comply with the above provisions, the builders are advised to maintain separate records in each site and account for all the inputs/input services used in the said project. Try to procure all the inputs, especially cement from the registered supplier. Builders have to remember that the above conditions are required to be met project wise, averaging of all the inputs (in case of more than one project) shall not be done. For proper understanding of 80% condition, first tax is to be paid on cement, if any, received from Unregistered Dealer. Then such value of cement to be added to the value of inputs procured from Registered dealer and verify whether it satisfies the condition of 80%. Tax at the rate of 18% has to be paid on such short quantity , if any.

4. JOINT DEVELOPMENT AGREEMENTS:

A typical JDA would give rise to four transactions both from the builder and land owner perspective, which are stipulated as under:

Supply	Nature of supply	Supplie r	Recipient	Conside -ration
1	Transfer of Development Rights (TDR)	Land Owner	Builder	Non-Monetary
2	Construction Services	Builder	Land Owner	Non-Monetary
3	Construction Services	Builder	End Customer	Monetary
4	Construction Services	Land Owner	End Customer	Monetary

In GST regime, the Transfer of Development Rights (TDR) or Floor Space Index (FSI) is a taxable supply. The situation prior to 1^st April, 2019 was as under:

As per 04/2018- CTR, the landowner has to pay the tax on the development rights transferred to the builder in respect of which he receives apartments and builder, in turn, takes the same as credit and utilises the same while discharging the liability.

Builder discharges tax on the flats allotted to the land owner and flats sold to normal buyers.

The position has altered after 1^st April, 2019 as under:

As per new provisions, where land owner has transferred development rights on or after 01st April 2019 to a builder for construction of a project, the land owner is relieved from payment of tax on transfer of such development rights, since the liability is shifted to the developer under RCM basis (refer Notification No. 05/2019)

However, the payment of tax on said development rights is exempted, subject to the following conditions (refer Notification No. 04/2019)

i) The exemption is granted only to the extent of development rights pertaining to residential  apartments. Hence, if a land owner transfers development rights in a project where commercial and residential apartments are intended, then exemption shall be only to the extent of tax payable on development rights pertaining to residential apartments; and

ii) the exemption is applicable only to the extent of residential apartments booked as on the date of Completion Certificate.

In simple words, the builder is responsible to pay the tax on the value of T DR or FSI (Floor Space Index), etc., received for construction purpose. However, exemption is applicable in respect of residential apartments to the extent of flats booked as on the date of completion certificate or its first occupation, whichever is earlier. In other words, the builder is required to pay the proportionate tax on the basis of residential flats un-booked by such date.

Hence, builder 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, in the following manner.

[GST payable on TDR or FSI (including additional FSI) or both for construction of the residential apartments in the project but for the exemption contained herein] x (carpet area of the residential apartments in the project which remain un-booked on the date of issuance of completion certificate or first occupation ÷ Total carpet area of the residential apartments in the project).

The tax payable in any case shall not exceed 5% of value of residential apartments remaining un-booked on date of issuance of completion certificate. The liability to tax arises on the date of issuance of completion certificate.

4.1 How to arrive at the value:

4.1.1. Value of TDR:

Value of supply of service by way of transfer of development rights or FSI by a person to the builder 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 builder from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter (Para 1A of Notification 4/2019–CTR).

4.1.2 Value of unsold flats:

The value of such unsold or un-booked flats at the date of completion certificate, shall be deemed to be equal to value of similar apartments charged by promoter nearest to the date of issuance of completion certificate (Para 1B of Notification 4/2019–CTR).

Let us see an illustration-

A land owner transfers development rights on 25th April, 2019, and as per the joint development agreement, the land owner is entitled for 40 flats (out of 100 flats in the project, assuming entire project is residential), then value of development rights is equal to value of similar flats sold by promoter nearest to the date of transfer of development rights. The promoter enters into an agreement of sale with an independent buyer for Rs. 1 Cr on 5th May, 2019, then the value of development rights transferred by land owner is Rs. 40 Crs (40 flats * 1 Cr /flat) (nearest to the date of TDR). The tax payable on such Development Rights (but for the exemption) = 40*18 %= Rs. 7.20 Crs However, the builder is not required to pay the above mentioned tax in case he sells all the flats before issuance of completion certificate or its first occupation. Continuing with the above example, if the promoter could not sell 10 flats (assuming the entire project is residential apartments, other than affordable) of his share as on the date of issuance of completion certificate. Assuming carpet area un-booked flats is 10%, then, the liability of promoter under reverse charge would arise on 10% of such un-booked carpet area. Hence, he has to pay 10% of actual liability = 7.20*10%= Rs.0.72 Cr (1) However, the rate of tax in any case shall not exceed 5% of value of residential apartments remaining un-booked on date of issuance of completion certificate. The liability to tax arises on the date of issuance of completion certificate (as amended by 04/2019-CTR).

–

Case-I: Assuming that the value of the flat sold near to the date of CC is Rs. 1.5 Cr, the value of unsold 10 flats would be Rs. 15 Cr and 5 % the same is Rs. 0.75 Cr ……..(2) The builder, thus, has to pay lower of above two, i.e., Rs. 0.72 Cr vs Rs. 0.75 Cr. Hence, an amount of Rs. 0.72 Cr has to be paid, since it is less than Rs. 0.75.

–

Case-II: Assuming that the value of the flat sold near to the date of CC is Rs. 1.25 Cr, the value of unsold 10 flats would be Rs. 12.50 Cr and 5 % the same is Rs. 0.63 Cr. Hence, the builder has to pay an amount of Rs. 0.63 Cr, since it is less than Rs. 0.72 Cr.

4.2 Time of supply:

The liability to pay tax in respect of TDRs/FSI as mentioned above, shall arise on the date of completion certificate/1^st occupation whichever is earlier.

4.3 How to understand TDRs in case of mixed projects:

The exemption is available to the extent of residential project only. The exemption has to be calculated as under:

[GST payable on TDR or FSI (including additional FSI) or both for construction of the project] x (carpet area of the residential apartments in the project ÷ Total carpet area of the residential and commercial apartments in the project).

From the above, it is understood that the exemption is available to the extent of residential apartments only. Hence, the builder has to pay tax on the value of T DRs relating to commercial portion.

Points to Remember: The tax payable on TDRs is 18%

4.4 Whether builder is required to pay tax on the flats allotted to the land owner?

Yes, the builder has to pay the tax.

4.5 The responsibility of land owner:

The land owner is required to pay tax on the flats sold by him to the normal buyer (out of the flats received from builder as per the development agreement.) However, he is eligible to take the credit of tax paid by him to the builder at the time of transfer/allotment of flats, subject to condition that all the flats allotted to him shall be sold before issuance of completion certificate or its first occupation whichever is earlier.

5. REVERSAL OF CREDIT – VARIOUS SCENARIOS (NOTIFICATION NO. 03/2019-CT(R) – ANNEXURES I and II)

As mentioned in previous chapters, the builder who is following the new tax structure has to reverse the ITC.

The notification deals with majorly two instances:

(1) Where % completion as on 31.03.19 is not zero or where there is inventory in stock.

(2) Where % completion as on 31.03.19 is zero but –

(i) credit has been availed on goods and services prior to 31.03.19.

(ii) invoicing has been done having time of supply before 31.03.19 and no input services or inputs have been received as 31.03.19.

5.1 Where % completion as on 31.03.19 is not zero or where there is inventory in stock:

> The entire objective is to find out credit which is attributable to the supplies post 01^st April, 2019 and reverse such amount. The said amount is represented as Tx.

> In simple terminology, we have to find out the eligible credit attributable till 31.03.2019 based on certain parameters.

> The said eligible credit is denoted as Te.

> Total credit taken till 31.03.2019 is T (including Tran-1 credit, if any), whether utilized or not.

> If we deduct such eligible credit (Te) from total credit availed, then we get the value of Tx which is attributable to the supplies going to be made after 01.04.2019 and such credit is required to be reversed by the builder.

> This Tx can be arrived by removing the credit of inputs and input services pertaining to residential apartments for which ToS is prior to 31^st March, 2019 (Tr) and removal of credit of input and input services pertaining to commercial apartments (Tc) from the total credit availed by promoter (T).

> Tx = T – Te [where Te = Tc + Tr]

> If, Te is greater than T, the value of Tx arrives in “negative” which means the builder has taken less credit than he was eligible. Hence, he can take credit to that extent on the inputs/input services received on or after 1st April, 2019.

Let’s see an example –

> A builder has availed credit in a particular project to an extent of Rs. 100 lacs (T).

> The eligible credit (Te) is Rs. 60 lacs.

> Then the credit to be reversed (Tx) = 100-60= 40 lacs

> On the other hand, if the Te= Rs. 120 lacs, Tx= 100-120= – 20. It means the builder can take the credit to an extent of Rs. 20 lacs.

When Tx = positive, the builder has to reverse; and when TX = Negative, he can take credit.

> Te is nothing but summation of Tc and Tr. Tc is the credit of input and input services attributable to construction of commercial apartments. Tc can be arrived as under:

Tc = (T) * carpet area of commercial apartments in REP / total carpet area of commercial and residential apartments.

> Tr is nothing but the input tax credit attributable to inputs and input services which are used for construction of residential apartments where time of supply for such construction services is prior to 31^st March, 2019. The notification states that Tr can be arrived as under:

Tr = (T) * F1* F2 * F3 * F4

> F1 is the quantum of carpet area of residential apartments in the total carpet area of project which contains both residential and commercial. If the project is only residential, then F1 shall be 100%. If project is 50% residential and 50% commercial, then F1 shall be 50%. It is important to find out F1 since we have to identify the credit pertaining to residential apartments from the total credit. F1 is calculated as under:

F1 = carpet area of residential apartments in REP / total carpet area of commercial and residential apartments.

> F2 deals with quantum of carpet area of residential apartments for which booking were received before 31^st March, 2019. This is important because, we are trying to identify the credit pertaining to supplies where ToS is prior to 31^st March, 2019 from the total credit. F2 gives us the quantum of bookings happened pertaining to residential apartments out of the total carpet area of residential apartments.

F2 = total carpet area of residential apartments booked on or before 31^st March, 2019 / total carpet area of residential apartment in REP.

> F3 is arrived by ascribing value to booking that happened prior to 31^st March, 2019, where ToS is prior to 31^st March, 2019. Total value of bookings happened prior to 31^st March,2019 is arrived and from that amount the value pertaining to supplies where ToS is prior to 31^st March, 2019 is identified.

F3 = Such value of supply of construction of residential and commercial apartments booked on or before 31st March, 2019 which has time of supply on or before 31st March, 2019 /Total value of supply of construction of residential and commercial apartments booked on or before 31st March, 2019.

F4 = 1 / % Completion of construction as on 31st March, 2019, as submitted to RERA.

For instance, 20% of the construction is completed by 31st March, 2019, F4 would mean 1/20% = 5.

Illustration

For example, a project which has commenced during 2018 is consisting of 100 residential flats each of 1000 Sft., carpet area. Hence, the proposed carpet area as per the permission is 1,00,000 Sft. The construction is still under progress and completion certificate has not yet been received.

The builder has not opted for old tax rate, i.e., he has not submitted the required Annexure-IV. Hence, new guidelines would be applicable. Out of the proposed 100 flats, 40 flats (carpet area of 40,000 Sft.) were booked prior to 31^st March,2019 and assuming each flat is Rs. 0.6 Crore, the value of bookings happened prior to 31^st March,2019 would be Rs. 24 Crores (40 flats * 0.6 Cro re/flat). Out of the 24 Crs, the builder has received 4.8 Crs (i.e., 20% of booking value) prior to 31^st March,2019. Let‟s assume that 20% of the construction is completed as on 31^st March,2019 and an amount of 1 Cr was availed towards ITC in respect of said project. Here,

T= Rs. 1 Cr.

F1 = 1 since the project is pure residential and falls under the category of RREP.

Here, there is no need to calculate Tr separately, that means Te and Tr are same (Te = Tc + Tr, as Tc = 0 as the project is RREP, Te= Tr) (Refer Annexure-II of Notification N0.03/20 19-CTR)

F2= 40,000/1,00,000 = 0.40

F3= 4.80/24 =0.2

F4= 1/20%=5

Te= T*F1*F2*F3*F4 =1*1*0.40*0.2*5 = 0.40 Cr.

Te= 0.40 Cr.

Tx = 1-0.4= 0.60 Cr.

Hence, the builder has to reverse 0.60 Cr. Either by debiting electronic credit ledger or cash.

5.2 Where % completion as on 31st March 19 is zero but invoicing has been done having ToS before 31st March 19 and no inputs and input services have been received as on 31st March 19:

• Since invoice/receipt vouchers have been done prior to 31^st March 19, the builder would have paid tax in cash/other credits at old rate. Since he has paid tax at old rate, credit to such an extent should be given to the promoter. Hence, credit which arrives post 01^st April 2019 to 31^st March 2020 has to be taken into consideration to arrive such credit which is attributable to the invoicing happened at old rate.
• The entire methodology as detailed in Scenario 5.1 above , shall be applicable with few changes with respect to T and F4. F4 will not be in existence since % completion is zero and one divided by zero would lead to infinity. Hence, F4 is dropped from the formula. Instead of T (total credit), Tn is being considered which is nothing but credit on goods and services availed during the period 19-20. Hence, with the said two changes, Te can be calculated and can be availed. F1, F2 and F3 would remain same and everything else also does not require any change.

5.3 Deemed Value of Te in certain situations:

Situation: 1

Where %age completion of invoice > %age completion of project and difference is greater than 25% points, the value of %age invoicing shall be restricted to %age completion of project plus 25% points.

The logic behind this is simple, in absence of such  deeming fiction, certain promoters might increase F3 artificially, so that Te becomes higher and  thereby avails such amounts as credit for utilisation post 01^st April 19. Hence, the deeming  substitution of %age completion of invoices has  been proposed.

Let‟s say if percentage of completion as on 31.03.2019 is 20% and percentage of invoices out of the flats booked as on 31.03.2019 is 60%. Hence, the difference is 40 (60-20). Since, this is more than 25, the value of invoices / taxable supply prior to 31^st March, 2019 shall be restricted to 45% of booking value.

Which is 45% of value of flats booked (Rs. 24 Crs.) = 10.80 Crs.

Then, F3 = 10.80 / 24 = 0.45.

Remaining parameters will be same.

Situation :2

Further, where value of invoices issued on 31st March,2019 exceeds the actual consideration received on or prior to 31st March, 2019 by more than 25% of consideration actually received, the value of such invoices for the purposes of determination of %age invoicing shall be deemed to be actual consideration received plus 25% of actual consideration.

This is also to restrict artificial inflation of F3.  There may be certain promoters who would like to  raise invoices stating that ToS was on 31^st March,2019, but consideration might not be  received. The law states value of invoices should  not exceed by more than 25% of actual  consideration.

Let us take an example to understand. The same Promoter has raised invoices on 31^st March, 2019 stating ToS as said date and value of invoices is Rs. 20 Crore and actual consideration received is Rs. 15 Crs. Hence, the value of invoices is 33% more than the actual consideration received. Since, the difference has exceeded actual consideration by more than 25%, the %age of value of invoices for the purposes of F3 shall be taken as 15 Cr + 25% of 15 Cr = 18.75 Cr.

6. AFFORDABLE RESIDENTIAL APARTMENTS :

As defined in Notification No.03/2019-CTR, there are two categories of constructions which fall under the definition of ^„affordable residential apartment’.

• First category – fresh & ongoing projects, if promoter has not chosen old rate and opted for new rate.
• Second category – constructions in ongoing projects under specific schemes, where promoter has not opted to pay tax at old rate.

6.1 Affordable Apartments – First category:

An apartment shall be affordable residential apartment if such apartments having carpet area not exceeding 60 square meter in metropolitan cities and not exceeding 90 square meters in cities or towns other than metropolitan cities and for which gross amount charged is not more than Rs. 45 Lakh rupees.

Note: For arriving 45 Lakh rupees, the consideration charged by builder for services provided, the value charged for transfer of land or undivided share of land including lease or sub-lease and any other amount charged by promoter from buyer including preferential location charges, development charges, parking charges, common facility charges shall be added.

If the promoter has not opted to pay tax under old rates and both the above conditions based on square meters and gross amount charged are satisfied, such apartments are called as ^„affordable residential apartments’, where effective rate of tax is 1%. All conditions as mentioned in ^„Conditions for Opting New Rate’ shall be applicable and observed by Promoters.

6.2 Affordable Apartments – Second category:

Constructions as per specified schemes with respect to ongoing projects shall be called as ^„affordable residential apartments’ even though they do not satisfy the area requirement (60 or 90 square meter) or 45 lakh rupees. However, the promoter should not opt for payment of tax at old rates. Such schemes are PMAY and similar.

If the promoter has not opted to pay tax under old rates and the project is an ongoing and falls under any of the above schemes, the rate of tax applicable is 1%. All conditions as mentioned in ^„Conditions for Opting New Rate’ shall be applicable.

7. IMPORTANT NOTIFICATIONS

Sl. No.	Notification No	Gist of the Notification	Effective from
1	Notification No. 3/2019-CTR dt 29.03.2019	Changes in GST rates	01.04.2019
2	Notification No. 4/2019-CTR dt 29.03.2019	Exemption to TDR, FSI and land premium	01.04.2019
3	Notification No. 5/2019-CTR dt 29.03.2019	RCM for TDR, FSI and land premium	01.04.2019
4	Notification No 6/2019-CTR dt 29.03.2019	Time of Supply for JDA	01.04.2019
5	Notification No. 7/2019-CTR dt 29.03.2019	RCM for 80% criteria	01.04.2019
6	Notification No. 8/2019-CTR dt 29.03.2019	Rate for RCM	01.04.2019
7	RDO 4/2019-CT dt.29.03.2019	Credit attributable to be determined based on carpet area	01.04.2019
8	FAQs dt.07.05.2019	FAQs on Real Estate
9	FAQs (Part-II) dt 14.05.2019	FAQs on Real Estate

Disclaimer- Please note that the subject guidance material is intended to provide general understanding on the subject and it should not be treated as a legal advisory, opinion or authority. For more details, all the concerned are advised to refer to the respective legal provisions of CGST Act 2017, CGST Rules, 2017, Notifications and Circulars of the Board.

Download GST on Real Estate – A Ready Reckoner on Recent Changes

Source- GST ON REAL ESTATE- A Ready Reckoner on Recent Changes by  RANGA REDDY GST COMMISSIONERATE, OFFICE OF THE CHIEF COMMISSIONER OF GOODS & SERVICES TAX AND CUSTOMS, HYDERABAD ZONE, GST Bhavan, L.B. Stadium Road, Basheerbagh, Hyderabad – 500 004, Phones: 040-23232028, 23237581, Fax: 040-23230974, E-mail: ccu-cexhyd@nic.in