1. Society self-Redevelopment

GST Registration

Yes, GST registration in case construction services is compulsory. As society going to sell flats to outsiders as well and that would be more than Rs. 20 Lakhs.

  • GST Rate

GST rate will be 1% if its cover under affordable housing scheme or else 5% GST rate will be applicable. Further society has to purchase at least 80% of the value of input and input services, from registered suppliers. If value of supplies from registered dealer is less than 80% then Society has to pay GST @18% on reverse charge (RCM) basis on all such inward supplies for the shortfall amount. Tax rate on Cement purchased from unregistered Person would be 28%.

No, as per new scheme no ITC allowed as concessional GST rate is applicable.

  • GST implication in case of existing Members of Society:

Issue of GST is settled. GST kicks in when a service is given to a third party. Here the owners are the members and they give themselves a bigger house. This bigger house is in lieu of the house earlier occupied by the member. Hence no service is given. No question of GST.

  • GST Implication of New Member before receiving OC:

In case of new member society has to collect GST @ 1% / 5 % from new members on total consideration received and same has to pay to the GST department, further NO input tax credit is allowed.

  • If flats remain unsold as on date of receiving OC:

In that case society has to pay GST @ 1% / 5 % on unsold flats as on the date of receiving OC. Calculation will be done on the basis of flats sold earlier.

  • GST on contribution received from existing member of Society for redevelopment:

It will be treated at par maintenance and it is taxable @ 18%, so it is advisable to take loan for such redevelopment work and same can be paid off by selling surplus flats to new members.

2. Society redeveloped through Builders:

Under this redevelopment schemes, societies undertake redevelopment of existing building owned by them by entering into Development Agreements with Builders.

  • GST Registration:

Generally liability to register under GST arises when aggregate turnover of a supplier in a financial year is above the exemption threshold of 20 Lakh Rupees. However, the GST law enlists certain categories of suppliers who are required to get compulsory registration irrespective of their turnover such as persons who are required to pay GST under reverse charge. In this case developer has to pay GST under RCM on TDR transferred from society to developer.

  • GST Rate:

GST rate will be 1% if its cover under affordable housing scheme or else 5% GST rate will be applicable. Further society has to purchase at least 80% of the value of input and input services, from registered suppliers. If value of supplies from registered dealer is less than 80% then Society has to pay GST @18% on reverse charge (RCM) basis on all such inward supplies for the shortfall amount. Tax rate on Cement purchased from unregistered Person would be 28%. (Its similar in both cases)

  • Is input Tax Credit (ITC) paid on purchase of material available?

No, as per new scheme no ITC allowed as concessional GST rate is applicable. (Similar in both cases)

  • GST implication in case of existing Members of Society:

GST is applicable @ 1 % or 5% and same is calculated based on first flat sold to outsider by the developer.

  • GST Implication of New Member before receiving OC:

GST is applicable @ 1 % or 5% on consideration paid to the builder/developer and it will be normal transaction as happen between normal transaction between builder and buyer.

  • If flats remain unsold as on date of receiving OC:

When the Society provides Development Rights (TDR) to a Developer, such transaction is exempt from payment of GST on the condition that the flats constructed by utilization of such TDR are booked before receipt of Occupation certificate or first occupancy, whichever is earlier.

Thus, if there are any flats which remain un-sold on the date of receipt of completion certification or first occupancy, GST shall be payable at the rate of 18% on the value of TDR proportionate to the carpet area of un-booked flats subject to maximum 1 % / 5% of the value of such un-booked flats.

The liability to pay GST shall arise at the time of receipt of completion certificate or first occupancy, whichever is earlier and payable by the Developer under Reverse Charge Mechanism (RCM).

For calculation of GST liability, value shall be calculated on the basis of flats sold to the outsider by the developer before receiving OC.

Calculation of GST liability on unsold flat as on the date of receiving of OC.

Example:

XYZ Pvt. Ltd. going to acquire the project of Re-development of ABC Society and all other details are as below.

No. Particulars Amount/Area/Unit
A) Total Flats in Building 20 Flats
B) Carpet area of Each Flats i.e. 400 Sq. Ft.
C) Total Carpet area of Flat i.e. ( A X B ) 8,000 Sq. Ft.
D) After Re-development Total Carpet Area (40 Flats to be construct having carpet area of 600 Sq.) 24,000 Sq. Ft.
E) Total Carpet area allotted to existing member (Existing 20 members get their flats of 600 Sq. ft. against their old 400 Sq. Ft. flats each) 12,000 Sq. Ft.
F) Area available for sale to new members ( D – E ) (i.e. 20 Flats of 600 Sq. Ft. Each ) 24,000 Sq. Ft.

Assumption:

  • Out of 20 new flats, 10 flats are sold before completion certificate (10 flat sold @ 10,000 per Ft. and 10 flats are remain unsold till the completion certificate.
  • However after completion these 10 Flats are sold at the rate of 15,000 per ft.
  • As the Flats are less than 60/90 Sq. Mtr. But sale consideration is more than 45 lakh hence GST applicable at the rate of 5%. Assuming that the all the material purchased from the registered supplier and if any procurement received on which RCM required to pay it paid as normally.

Calculation of GST paid on TDR under RCM:-

Liability would be lower of the Following.

A. (GST payable on development rights for old apartments)* Carpet area of apartments which remain un-booked as on the cutoff date

/Total carpet area of the apartments)= (10,000 X 12,000 Sq. Ft. X 18%) X (600 Sq. Ft. X 10 Flats)

24,000 Sq. Ft.

= Rs. 54,00,000/-

Or

 B. Value of un-booked apartments as on OC date as per last agreement

* Applicable rate of GST on construction Service (i.e. 5%) (15,000 X 600 Sq.Ft. X 10 Flats X 5%)

Rs, 45,00,000/-

GST Liability will lower of the above I.e. Rs. 45,00,000/-

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional. To get the legal view on this matter please contact me on my Mob: 8879136379. Or follow me on linkedin linkedin.com/in/ca-vishal-singh-43a931132 

#GST #SelfRedevelopment #SocietyRedevelopment

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3 Comments

  1. CA Hiral Pala says:

    Hello Sir, w.r.t. your article on GST on Society self development v/s redevelopment thru builder.
    It is really very informative article. Can you share relevant notification and reference material.
    Thank you so much

    1. visvikas08 says:

      Dear Hiral, there is no specific notification for this, you have to refer latest scheme announce for builder as well as various GST notifications. Further GST Act is silent on some issues hence I took view of service tax case laws.

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