As you all are aware that real estate services are governed by Real Estate (Regulation and Development) Act, 2016. This sector is a contributing factor to our GDP, but past few years has been challenging for this sector due to two major decisions taken by Government of India:
- Demonetization
- Implementation of GST
Both these decisions of government have resulted in huge losses to this sector and till date its survival is equal to death. The GST council in its 34th meeting came out with various amendments in order to revive and boost growth in this sector and not even year has passed an unimaginable pandemic named COVID19 emerged which will severely affect this sector.
Let’s understand this topic.
SCHEDULE II OF CGST ACT, 2017
Para 5 of Schedule II of CGST Act 2017 inter alias includes:
The following shall be treated as supply of services, namely: —
- 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, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
SCHEDULE III OF CGST ACT, 2017
- Para 5 of schedule III read with para5(b) of schedule II of CGST Act 2017 states that NO GST shall be where the entire consideration is received after issuance of completion certificate/occupancy certificate by the competent authority or its first occupation whichever is earlier.
TWO TERMS WE NEED TO KNOW MEANING
- RREP (Residential Real Estate Project):- means Real Estate Project of residential(REP) apartments with commercial apartments not more than 15% of the total carpet area of REP.
- Affordable Residential Apartment means having carpet area not exceeding 60 sq. meter in metropolitan city and 90 sq. meter in non-metropolitan city and for which the gross amount charged is not more than 45 lakhs.
OLD SCHEME BEFORE 01.04.2019
In order to understand about new scheme, we must briefly know the provisions which were applicable before such amendment came into force. The following rates were applicable:
- GST at 12% was applicable on ‘supply of real estate before completion’.
- Concessional rate of 8% was applicable for units qualifying for Affordable Housing
Provided that developer was allowed to take benefit of ITC paid.
APPLICABILITY OF NEW SCHEME W.E.F 01.04.2019
The GST council in its 34th meeting came up with new scheme to be effective from 01.04.2019 and reduced GST rates in order to boost this sector, but following points needs to be remembered regarding its applicability.
- In case of ongoing projects as on 01.04.2019, the promoter has option to opt for old provisions of tax.
- If opted, then required to submit declaration in specified form to jurisdictional commissioner before 20.05.2019.
- If no declaration submitted, then it shall be deemed to have opted for new provisions.
- Any project started on or after 01.04.2019 then only new provision applicable.
- Under new scheme ITC shall not be allowed
ONGOING PROJECTS
Here one needs to understand which projects will be treated as ongoing projects and to clarify the same Para 2 of the Press Release dated 19th March 2019, defined ongoing projects as:
- Building where ‘construction’ started before 01.04.2019 &,
- Building where actual ‘booking’ started before 01.04.2019 &,
- Building which have not been completed by 31.03.2019.
Now let’s understand the GST rates applicable on construction of:
- Affordable residential apartments
- Other than Affordable residential apartments
- Construction of commercial apartments
GST ON CONSTRUCTION OF AFFORDABLE RESIDENTIAL APARTMENTS
As we have read above the meaning of affordable residential apartments now further we need to know the rates applicable on this service. The applicability of GST rates depends upon whether the supply involves transfer of land/undivided share of land or not and from here we can bifurcate the applicability of GST rates under two heads:
(I) Where supply involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 0.5% |
| SGST | 0.5% |
| IGST | 1.0% |
(II) Where supply does not involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 0.75% |
| SGST | 0.75% |
| IGST | 1.50% |
GST ON CONSTRUCTION OF OTHER THAN AFFORDABLE RESIDENTIAL APARTMENTS
The above point specifies only GST rates applicable on affordable residential apartments but there are various other residential apartments built under RERA Act, and they may be Residential Real Estate Projects(RREP) or Real Estate Projects(REP). Here also applicability of GST rates depends upon whether the supply involves transfer of land/undivided share of land or not.
(I) Where supply involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 2.5% |
| SGST | 2.5% |
| IGST | 5.0% |
(II) Where supply does not involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 3.75% |
| SGST | 3.75% |
| IGST | 7.50% |
NOTE: Remember that the same rate is applicable for both RREP & REP.
GST ON CONSTRUCTION OF COMMERCIAL APARTMENTS
Now after residential apartments we need to understand the applicability of GST rate on commercial apartments and here also applicability of GST rates depends upon whether the supply involves transfer of land/undivided share of land or not but here the different rates are further specified for RREP & REP.
- COMMERCIAL APARTMENTS IN RREP
1. Where supply involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 2.5% |
| SGST | 2.5% |
| IGST | 5.0% |
2. Where supply does not involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 3.75% |
| SGST | 3.75% |
| IGST | 7.50% |
- COMMERCIAL APARTMENTS IN REP
1. Where supply involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 6.0% |
| SGST | 6.0% |
| IGST | 12% |
2. Where supply does not involves transfer of land or undivided share of land:
| HEAD | RATE |
| CGST | 9.0% |
| SGST | 9.0% |
| IGST | 18.0% |
Now doubt arises in mind what was need for government to bifurcate and specify different rates. As far I can think the involvement of land makes the apartment costly and moreover as per valuation rules Value of land shall be taken as 1/3 of total amount charged which at times may be more than actual what it should be, therefore in all cases above where involvement of land exists rate are comparatively lower.
ITC IN CASE OF ONGOING PROJECTS WHERE PROMOTER SHIFTS TO NEW SCHEME
In case of developer who are involved in their project and shifts to new scheme:
- Reverse the excess ITC availed under the old scheme compared to tax paid by him on his output supply.
- Entitled to get credit to the extent of less ITC availed by him in case he has availed less ITC compared to tax paid by him on his output supply.
VALUATION RULE U/S 15
In case total amount charged includes value of land, the tax shall be payable on
Total amount charged – value of land
Provided that Value of land shall be taken as 1/3 of total amount charged.
80% PROCUREMENT RULE
- As per this rule promoter is required to procure all capital goods and at least 80% of input & input services from registered suppliers.
- If not procured promoter shall pay tax under RCM.
- Cement must be purchased from registered supplier only, if not RCM @ 28% applicable.
- In case of unregistered purchase other than cement RCM @ 18% APPLICABLE.
- This 80% limit shall be calculated at the end of financial year and any tax payments on shortfall shall be paid by end of quarter following financial year.
- The promoter shall maintain project wise account of inward supplies from registered and unregistered suppliers.
- The calculations are to be done financial year wise.
- Registered supplier here means supplier registered under regular scheme or composition scheme.
FREQUENTLY ASKED QUESTIONS
A number of issues have been raised regarding the new GST rate structure notified for real estate sector effective from 01-04-2019. A compilation of Frequently Asked Questions (FAQs) was presented through circular F. No. 354/32/2019-TRU, Dated the 7th May, 2019. From the questions presented there I have taken entailed some of the questions related to basic topic covered above.
Q 1. Someone booked a flat from XYZ Developers in June, 2018. As of 31-03-2019, he had paid 40 % of the value of the flat. What shall be the GST rate applicable on the remaining portion of value of the flat?
Ans: GST on the remaining portion of the value of flat payable to the promoter on or after 01-04-2019 as per the contract between the promoter and buyer shall be payable at effective rate of 1% or 5%, subject to the condition that the builder has not exercised the option to pay tax on construction of apartments at the old rates of 12% or 18%.
Q 2. I am a beneficiary of PMAYCLSS and carpet area of my house being constructed in an ongoing project is 150 sqm. Am I eligible for new rate of 1% on same?
Ans: You are eligible for new GST rate of 1%, subject to the condition that the developer-promoter with whom you have booked the house has not exercised option to pay tax on construction of apartments at the old rate of 8%.
Q 3. I am planning to purchase an apartment in a newly launched project. The project has been launched after 31.03.2019 by XYZ Developers at Noida. Price of the apartment having carpet area of 80 sqm is 48 lakhs. What is the rate of GST applicable on construction of this apartment?
Ans: The tax rate applicable on construction of the apartments in a project that commences on or after 01.04.2019 would be 5%.
Q 4. I have already paid tax of 12% (effective) on instalments paid before 01.04.2019. I wish to get the benefit of new rate of 1% or 5%. Whether it is the builder or the buyer who has the option to pay tax at the new or old rates?
Ans: The buyer cannot exercise option to pay tax at the new or old rates. It is the builder, who has to exercise the option to pay tax on construction of apartments at the old rate.
Q 5. How to compute adjustment of tax in a Credit Note to be issued u/s 34 by Real Estate Developer in case unit was booked prior to 1st April, 2019 on which GST was paid on part consideration received at the time of booking, but cancelled after 1st April,2019?
Ans: Developer shall be able to issue a Credit Note to the buyer as per provisions of section 34 in case of change in price or cancellation of booking provided that the amount received in excess if any, consequent to issuance of Credit Note, is refunded to the Buyer by the Developer before September following the end of the financial year. Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note. For example, a Developer who paid GST of Rs. 1,20,000 at the rate of 12% (effectively) in respect of a gross amount of booking of Rs. 10,00,000 before 1st April, 2019 shall be entitled to take adjustment of tax of Rs. 1,20,000 upon cancellation of the said booking on or after 1st April, 2019 against other liability of GST including liability arising at the rate of 5% / 1% provided that the entire amount received from the buyer is refunded by the Developer.
Further, in case apartments booked prior to 1.04.2019 on which GST has been paid till 31.03.2019 at the old rates of 8%/ 12% with ITC, are cancelled and rebooked at the new rates of 1% / 5% without ITC or sold after issuance of completion certificate, the credit taken in respect of such apartments for supply of service till 31.03.2019 on which tax was paid @ 8%/ 12% with ITC shall be required to be reversed.
Q 6. Whether the option to pay tax at the applicable effective rate of 12% or 8% (with ITC) is available to the Promoter in respect of the New Project, which has been commenced on or after 1st April 2019?
Ans: No, there is no option to pay tax at the effective rate of 12% or 8% with ITC on construction of residential apartments in projects which commences on or after 01-04-2019.
Q 7. A registered project has three blocks and Completion Certificate has been received for one block prior to 1st April, 2019 and for two blocks will be received after that date. Will such a project for which multiple completion certificates are received partly before 1st April, 2019 and partly after that date, constitute an ongoing project?
Ans: if completion certificate has not been issued for part of the project on or before 31- 03-2019, the project shall still be considered as ongoing project provided other conditions of the definition of „ongoing project „are met.
Q 8. It is a prevalent practice that more than one commencement certificate is issued by competent authority for single project. For example, in case of a single tower comprising of 50 floors and registered as single project, separate commencement certificates may be issued by the competent authority for (i) basement and parking which is common to entire building (ii) first twenty floors (iii) next thirty floors. If one or two commencement certificates are received by the Developer prior to 1st April, 2019 and remaining on or after that date, will such a project be considered as an ongoing project?
Ans: Where commencement certificate has been issued even for part of the project on or before 31-03- 2019, it shall be treated as an ongoing project provided other requirements of the definition of ongoing project are met.
Q 9. Can a developer take deduction of actual value of Land involved in sale of unit instead of taking deduction of deemed value of Land as per Paragraph 2 to Notification No. 11/2017- CTR ?
Ans: No. Valuation mechanism prescribed in paragraph 2 of the notification No. 11/2017- CTR dated 28.06.2017 clearly prescribes one- third abatement towards value of land.
Q 10. In certain projects, developers have started construction on or before 31-03-2019. However, bookings in the project have not started. One of the conditions prescribed for a project to qualify as an ongoing project is that apartments being constructed should have been partly or wholly booked. Whether such project where bookings have not started but construction has started, would be eligible for the new rates of 1% or 5% without ITC?
Ans: As per explanation in clause (xxviii) of para 4 of the notification No. 11/2017- CTR dated 28.06.2017, “project which commences on or after 01.04.2019” shall mean a project other than an ongoing project. A project, in which bookings for the apartments have not started, would not be covered under definition of “ongoing project”. The same would accordingly be treated as a project which commences on or after 01.04.2019 subject to the new rates of 1% or 5% without ITC, as the case may be.
Q 11. Whether the Form as per Annexure IV of the Notification No. 3/2019-CTR is to be filed with both the jurisdictional commissioner i.e. Central Tax, State Tax?
Ans: No. The Form shall be filed manually with the office of the Commissioner in whose jurisdiction the registration of the promoter is assigned.
Q 12. Whether modification / amendments in such Form are allowed subsequent to filing of the form, after 10th May, 2019?
Ans: No modification / amendment of the option is allowed in the Form once submitted.
CONCLUSION
Through this scheme government has made efforts for revival of real estate sector by lowering the GST rates as it will lower the prices of apartment thereby increasing the purchasing power of the common man. Hopefully government meets its objectives through this scheme.
Author Bio
iam a builder only construction services to land owner whether gst is applicable or not ?
(provide services of constructing residential apartments and houses)