Sale of land and building (except when sold before completion certificate), is neither supply of service, nor supply of goods, as per Schedule III of CGST Act.

As per Schedule II of CGST Act 2017, Construction (including additions, alterations, replacements or remodelling of any existing civil structure) 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 is Supply of Service.

Accordingly, construction of a complex, building, civil structure intended for sale to a buyer is considered a service and liable for GST – if any consideration is received before issuance of completion certificate.

However, GST is not applicable if the whole of the consideration for a property is paid after issuance of completion certificate by a competent authority or after its first occupancy, whichever is earlier.

Further, as per CGST Amendment Act 2018, as per Sec 17(3) of CGST Act 2017, relating to proportionate reversal of ITC, when taxable person is engaged in both taxable and exempt supplies, the value of exempt supplies shall include- Value of sale of land & building (when sold after completion certificate)

Valuation

While calculating the value of supply, in case of sale of under-construction property, 1/3rd of total amount charged for transfer is deducted, to arrive at the taxable value of supply. Accordingly, value of taxable supply shall be 2/3rd of total value of supply. 1/3rd of the total amount is deemed as value of land or undivided share of land supplied to the buyer and is not taxable under GST.

Rate of GST

Construction services – 18% (Effective rate: 18% x 2/3 = 12%)

Composite Works contract service, for affordable housing – 12% (Effective rate: 12% x 2/3 = 8%)

(Carpet area upto 60 square metres)

Recommendations in GST Council 33rd meeting in regards to this

1. GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment;

2. GST shall be levied at effective GST of 1% without ITC on affordable housing properties.

3. To be effective from 1st April 2019

4. Affordable housing shall be:- A residential house/flat of carpet area of upto 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value upto 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).

(Author can be reached at simrankatyal96@gmail.com)

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5 Comments

  1. chayan mukherjee says:

    whether land owner has to pay GST on his ongoing project? date of agreement 03/08/2016 date of completion certificate 10/05/2019 and date of possession 07/04/2019 by the promoter(developer)

  2. Lucky Nanwani says:

    Hi Simran,

    I was seeking your opinion on below issue with respect to your published article:

    Issue 1. The Proposed reduced rate of 1%/5% is applicable w.e.f. 01-04-2019.
    In case of under construction properties, if there is any accumulated ITC lying in Credit Ledger of the Builder as on 31-03-2019, whether such credit can be claimed against GST Liability of such outward supplies.

    Issue 2: If any amount in form of booking money (Forming Part of Consideration of the under Construction Flats) is received on or before 31-03-2019, what rate of GST should be applied, 8/12% or 1/5% on such amount.

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