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INTRODUCTION

Real estate is an important pillar of the India Economy. Taxation of real estate sector has always been critical issue, before GST was introduced in 2017 various taxes like VAT, Central Excise duty Service tax etc, were paid by the buyer. The cost incurred of these taxes by builder was then transferred to the buyer.

However after implementation of GST in 2017 the GST subsumed multiple tax into one tax called GST.

SCOPE OF SUPPLY UNDER GST IN RELATION TO REAL ESTATE SECTOR

As per section 7 of the CGST Act, 2017 ‘supply’ includes all forms of supply of goods or services or both such as sale, transfer ,barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business in relation to real estate sector. This is because goods under the GST Act only include movable properties, whereas real estate properties are considered immovable properties and are categorized as services.

To understand services in relation to the real estate sector, reference can be made to Schedule II, item no. 5 of the CGST Act, which states The following shall be treated as supply of services, namely:-

  • Renting of immovable property;
  • construction of a complex, building, civil structure, or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, are considered as supply of services under the GST Act. However, if the entire consideration for the construction has been received after the issuance of the completion certificate or after its first occupation, whichever is earlier, by the competent authority, then it is not considered as supply of services under the GST Act..

GST RATE ON THE CONSTRUCTION OF RESIDENTIAL APARTMENTS

With effect from 01-04-2019, effective rate of GST applicable on construction of residential apartments by promoters in a real estate project are as under:

Type of Real estate property GSt rate till 31st march 2019 Input tax credit GST rate (from 1st April 2019 onwards) Input tax credit
Construction of affordable residential apartments 8% Available 1% Not Available
Construction of residential apartments other than affordable residential apartments 12% Available 5% Not Available
Commercial properties 12% Available 12% Available
Sale of Completed flats/Units after obtain completion certitificate/ occupational certificate Nil Not Available Nil Not Available

GST APPLICABLE ON CONSTRUCTION OF COMMERCIAL APARTMENTS [SHOPS, GODOWNS, OFFICES ETC

Description Effective rate of GST (after deduction of value of land)
Construction of commercial apartments in a Residential Real Estate Project (RREP), which commences on or after 01-04-2019 or in an ongoing project in respect of which the promoter has opted for new rates effective from 01-04-2019 5% without ITC on total consideration.
Construction of commercial apartments in a Real Estate Project (REP) other than Residential Real Estate Project (RREP) or in an ongoing project in respect of which the promoter has opted for old rates 12% with ITC on total consideration.

RESIDENTIAL REAL ESTATE PROJECT

“Residential Real Estate Project” means a „Real Estate Project” 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 project.

GST on Real Estate Sector

CONDITION FOR AVAILING NEW TAX REGIME

A promoter shall purchase at least 80% of the value of input and input services, from registered suppliers. 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.

However in case value of purchases as prescribed above from registered supplier is less than 80% 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%).

AFFORDABLE RESIDENTIAL APARTMENT

Affordable residential apartment is 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 upto 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 45 lakhs rupees. [Cities or towns in the notification shall include all areas other than metropolitan city as defined, such as villages.] In an ongoing project in respect of which the promoter has opted for new rates, the term also includes apartments being constructed under the specified housing schemes of Central or State Governments.

METROPOLITAN CITIES

  • Bengaluru
  • Chennai
  • Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad),
  • Hyderabad,
  • Kolkata
  • Mumbai (whole of MMR) with their geographical limits prescribed by Government.’

WHAT IS AN ON-GOING PROJECT

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 31stMarch, 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 3 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.

GST ON TRANSFER TDR/FSI/AFSI/ LEASE HOLD LAND

  • Supply of TDR (Transfer of Development Right) or FSI (Floor index supplied) or long term lease of land used for the construction of residential apartments in a project that are booked before issue of completion certificate or first occupation is exempt.
  • Supply of TDR or FSI or long term lease of land, on such value which is proportionate to construction of residential apartments that remain un-booked on the date of issue of completion certificate or first occupation, would attract GST.
  • The promoter is liable to pay GST at the rate of 18%, but the amount of tax shall be limited to1% or 5%of value of apartment depending upon whether the residential apartments for which such TDR or FSI is used, in the affordable residential apartment category or in other than affordable residential apartment.
  • TDR or FSI or long term lease of land used for construction of commercial apartments shall attract GST of 18%. The above shall be applicable to supply of TDR or FSI or long term lease of land used in the new projects where new rate of 1% or 5% is applicable.

EXAMPLE

Mr. X has transferred his development rights to Mr. Y for a consideration of Rs. 100 crore, and Mr. Y has developed 100 flats on the land. Out of these 100 flats, 60 flats were sold or booked before receiving the completion certificate from the competent authority, and the remaining 40 flats were sold after receiving the completion certificate from the competent authority, and the remaining 40 flats were sold after receiving the completion certificate In this case, since Mr. Y has sold 40 flats after receiving the completion certificate, the GST will be applicable to the supply of development rights only to the extent of these 40 units. Therefore, the GST payable on the supply of development rights will be 18% of Rs. 40 crore, which comes to Rs. 7.2 crore

SUMMARY

1. Affordable residential apartments in metropolitan cities are defined as residential apartments with a carpet area of up to 60 square meters and a gross amount charged by the builder not exceeding 45 lakhs rupees.

2. Affordable residential apartments in non-metropolitan cities are defined as residential apartments with a carpet area of up to 90 square meters and a gross amount charged by the builder not exceeding 45 lakhs rupees.

3. Builders are not entitled to input tax credit related to supply used in construction services taxed at 1% or 5%.

4. Builders are required to purchase at least 80% of the value of input and input services from registered suppliers.

5. Builders are required to purchase cement and capital goods from a registered person. If the builder purchases from an unregistered person, they have to pay GST at 28% on reverse charge basis.

6. GST does not subsume stamp duty or registration charges, and these duties still need to be paid separately while buying a property.

7. The sale of ready-to-move properties is neither treated as a supply of goods nor a supply of services, and therefore no GST is applicable on ready-to-move properties.

8. Land is neither considered goods nor services and is outside the scope of supply under GST.

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4 Comments

  1. Bindesh says:

    Sir, If a project combined commercial and residential flat,which rate is liable for GST for affordable under construction residence flat criteria?

  2. Sachidanand says:

    sir, I have one commercial property and we have done an agreement with buyer to sell this property before taking CC and also we have received some advance. Now I have CC and need to sale this property. what’s is the liability as per get

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