GST on transactions under Real Estate Sector
Outright Purchase of Land/Plots without tenants: –
Situation where the promoter/builder purchase the plot/land on which they wish to construct their schemes, but this situation is very rare as this involves lot of working capital blocked as the cost of land is huge.
|1||If full payment is made to the seller in monetary terms||– Schedule III brings out the position that transaction for sale of land falls neither under ‘supply of goods’ nor under ‘supply of services’ and accordingly, is outside the ambit of GST.
– Seller will not be liable to collect any GST on sale of land.
|– As there will be no GST to be charged by seller. Buyer has no obligation to pay that.|
|2||If partial payment in money and the balance in the form of constructed area in the building to be constructed||– Schedule III brings out the position that transaction for sale of land falls neither under ‘supply of goods’ nor under ‘supply of services’ and accordingly, is outside the ambit of GST.
– The fact that consideration was fully or partly paid in terms of the constructed area does not detract it from its nature of sale, so long as the transfer is by execution of the conveyance deed.
|– In case of effecting transfer to independent buyers, after issue of completion certificate, there will be no GST on transfer of such units.
– However, where transfer is as a consideration for land, the consideration of the constructed units by way of land was received before the issue of completion certificate and, therefore, GST will be payable by the developer.
2. Outright Purchase of Land/Plots with tenants: –
Situation same as above (1) but here builder has additional job to deal with the tenants who already occupied the plot/land. In this para we will discuss the liability of tenant and builders.
We need to understand first GST will be applicable to tenant too as tenant renounces his right in the property and transfer it to the builder, grants permission to enter and hand over peaceful possession of the property in consideration of either a lumpsum amount or as a compensation as a new unit in existing or alternative accommodation in another residential unit of promoter/builder.
|1||Tenants evicted by paying them monetary consideration||– Subject to the tax net GST, tenant will be liable to charge GST @ 18% to the Promoter/ Builder.||– They can take ITC if they have schemes other than RREP.|
|2||Compensation, a unit in the new building in lieu of their existing occupation||– GST liability will arise on the parallel to as defined in Notification No. 04/2018 at the time of the transfer of possession or the right in the unit by the developer to the tenant by entering into the conveyance Deed or any other similar instrument.
– The value of service will be the value of the consideration will be the price of similar accommodation charged by the developer from the independent customers at the same time or nearest to that time.
|– The developer will be rendering construction service by constructing the permanent alternate accommodation for the tenants.
– The valuation of such services will be governed by the price at which he is able to sell his units in the building to his customers and the liability will arise on parallel to as defined in Notification No. 04/2018, at the time when he transfers possession to the tenant by executing the transfer document.
– The tenant is liable to GST in respect of the service by way of vacating the unit. Such supply of service by the tenant becomes the input for the supply of construction services by the developer and, accordingly, the developer is eligible to claim input tax credit of the tax paid by the tenant.
|3||Tenant demands additional area as a compensation||– the tenant is liable to GST on the total value of the area of the new unit he will have the primary liability as the service provider and on the additional area.|
The developer ‘A2Z’, in consideration of the tenant ‘T’ vacating the unit admeasuring 1,000 sq. ft. agrees to provide him unit of 1000 sq. ft in the building to be constructed as alternative accommodation. “He is rendering construction service to the tenant in respect of such accommodation as the consideration of vacation services rendered by the tenant”. When he transfers possession of such unit to the tenant, he will be subjected to GST at the effective rate of 12%. Presuming that he is selling his units @ Rs. 5,000 per sq. ft. then the value of the construction service will be Rs. 5,000 X 1,000 sq. ft. i.e. Rs 50,00,000. If, however, the tenant has been subjected to GST on services supplied by him to the developer, then such service by the tenant becomes the input for the construction service and therefore the developer will be eligible to take credit of the tax paid by the tenant. This, by and large, will result in tax neutrality.
3. Redevelopment arrangements with Housing Societies
Basic of Development agreements and Deliverables
1. the same area which the member was occupying; or
2. the same with additional area as per development agreement;
3. additional area which can be purchased by the member.
GST on execution of Redevelopment agreement before 31.03.2019
The view being taken is that the development agreement results in supply of taxable service to the developer attracting GST payable by the supplier of service i.e., the Society (landowner). The timing of supply in terms of Notification No. 04/2018, referred to in Part II, will be the time when the promised constructed area is transferred by execution of conveyance deed or any other instrument by the developer in favour of the Society (landowner).
value will be determined by the constructed units of like kind and quality which, in generality of cases, will be the price of similar units charged by the developer in respect of his own free sale area.
Even though the Notification 04/2018 refers to tax liability of the landowner who transfers development rights to the developer, there is a contrary view according to which ‘development rights’ are benefit arising from the land and, accordingly, such rights are ‘immovable property’ being akin to land. A Writ petition challenging the chargeability of GST in respect of transfer of development rights is pending for decision before the Hon’ble Bombay High Court.
The issue therefore, is argumentative. Based on the notification referred to above, the Department is taking the view in favour of chargeability. A cautious view is, therefore, called for in the matter.
GST on execution of Redevelopment agreement after 31.03.2019
Notification No.03/2019 dated 29th March,2019 has closed all above controversies in respect of supplies taking place on or after 01.04.2019. The notification has shifted the primary liability from the Landowner-Promoter to the Development Promoter. Notification stated that: –
GST applicability on Members of Co-operative Housing society on redevelopment
For ascertaining liability of members in this tripartite agreement, we need to understand whether there is any supply by the member to the society or developer and whether members are entitled for any consideration in this overall agreement. Again, lets count the deliverable, roles and responsibilities from member point of view and its other parties in the agreement.
Privity of Contracts
A view is possible under which the consent by the member is taken to be a service to the developer. Consider this for inconvenience faced by members, agreement provides payment of rent for the intervening period, which will become a consideration for his service and be the value for this purpose.
Redevelopment from builder’s perspectives