GST on Real Estate Sector (Changes w.e.f 1st April, 2019)

Legal Provisions

Six Notifications No. 3 to 8/2019-Central Tax (Rate) all dated 29th March, 2019

Six Notifications No. 3 to 8/2019-Integrated Tax (Rate) all dated 29th March, 2019

Six Notifications No. 3 to 8/2019-UT Tax (Rate) all dated 29th March, 2019

One Notification No. 16/2019 –Central Tax dated 29th March, 2019 amending the CGST Rules, 2017

GST on Real Estate Sector

GST Rates for Real Estate Sector to be effective from 1st April, 2019

  • Affordable housing properties: Effective GST rate of 1% without ITC
  • Residential properties outside affordable segment: Effective GST rate of 5% without ITC

Definition of affordable housing:

  • 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).

Option in respect of ongoing projects

  • ‘Option’ only for existing projects. For new projects, new rates will be applicable.
  • One-time option (to be exercised once by 10th May, 2019) 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.
  • “On-going project” has been defined to mean a project Which has received commencement certificate and Certificate from an architect or other notified person that the construction has started and completion of the project has not been received
  • Earth work for site-preparation is completed and excavation has started before 31 March 2019.
  • At least some apartments in the project should have been booked prior to 1 April 2019.
  • At least one instalment should have been received from the flat buyer and should be credited to the bank account of the promoter.

The meaning of the various terms including that of promoter, project, carpet area has been aligned to that under RERA.

New effective rate of 1% without input tax credit (ITC) on construction of affordable houses shall be available for,

a) 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

b) affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).

New effective rate of 5% without input tax credit shall be applicable on construction of,-

a. 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.

b. All houses other than affordable houses in new projects.

c. 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.

Conditions for the 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,-

a) Input tax credit shall not be available,

b) 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80%, tax shall be paid 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.

Transition for ongoing projects opting for the new tax rate

  • 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 method prescribed under Annexure-I (For REP Projects) and Annexure-II (For RREP Projects) of the Notification No. 11/2017- Central Tax (Rate), dated 28th June, 2017, as amended by Notn 03/2019-CT(R) dated 29th March, 2019
  • Thus, transition would 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.

Amendment to ITC rules

  • Rule 42 and 43 of CGST Rules, 2017 have been suitably amended to bring greater clarity on monthly and final determination of ITC and reversal thereof in real estate projects. Also Annexure-I (For REP Projects) and Annexure-II (For RREP Projects) are added to the Notification No. 11/2017-Central Tax (Rate), dated 28th June, 2017 providing procedure for reversal of input tax credit.
  • The new scheme provides for reversal of ITC on the following parameters:
  • Entire ITC in respect of the project, availed from 1 July 2017 (including transitional credit) or the date of start of project whichever is later, would be computed.
  • The total carpet area of the project would further be divided in the proportion of commercial (full rate), residential (full rate), residential (new rate) and commercial being part of RREP (new rate).
  • The total eligible credit would be proportionately allowed only to the extent of the tax paid on apartments taxed at full rate.
  • The total eligible credit would be computed mainly on the basis of following three parameters as on 31-03-2019 viz –
    • Percentage of booking
    • Percentage of invoicing and consideration received
    • Percentage of completion of construction
  • Different methods have been provided for computing the eligible ITC under separate tax heads (IGST, CGST, SGST respectively).

Mandatory condition for opting new rate of tax (RCM): Notification no. 3/2019 and 7/2019 and annexure III of 3/2019

  • At least 80% of the total purchases (excluding capital goods, TDR, FSI, high speed diesel, electricity, motor spirit, etc) should be procured from registered dealers. The criteria of 80% should be applied to each project on a financial year basis.
  • In case of shortfall, tax would have to be paid on reverse charge only to the extent of shortfall. The rate of tax applicable for shortfall would be 18% in case of goods and services other than cement. In case of cement the rate of tax would be 28%.
  • In case of capital goods although the criteria of 80% does not apply, each and every purchase of capital goods should be procured from registered dealers only.
  • In case of purchase of capital goods from unregistered dealer, the entire liability to pay tax would be on the promoter under reverse charge mechanism.

Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019 (Notification No.04/2019- C.T(Rate) dated 29.03.2019

  • 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 not be available in case of flats, which remain un-booked on the date of issuance 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.

Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019 (Notification No.07/2019-C.T(Rate) dated 29.03.2019

  • The liability to pay tax on TDR, FSI, long term lease (premium) shall be on the Promoter instead of land owner under the reverse charge mechanism (RCM).
  • The date on which builder shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under RCM in respect of flats sold after completion certificate shall be the date of issue of completion certificate. (Notification No.04/2019-C.T(Rate) dated 29.03.2019
  • The liability of builder to pay tax on construction of houses given to land owner in a JDA is shifted to the date of completion

Treatment of TDR/ FSI and Long term lease for projects commencing and supply of Construction service in lieu thereof- after 01.04.2019 (Notification No.06/2019-C.T(Rate) dated 29.03.2019

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

Treatment of TDR/ FSI and Long term lease etc

  • To the extent of the unsold apartments, proportionate tax would have to be paid on the value of transfer of such rights.
  • The value of such rights is 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. Such tax would be payable only at the time of completion.
  • Further, the tax payable on such value shall be capped so as to not exceed the tax calculated at the rate applicable on the unsold units as on the date of completion.

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