CA Rajesh Bhauwala
1. What is the definition of Affordable Housing :
a) A Residential House/flat of carpet area of up to 90 Sqm(968.752 sq ft) in Non metropolitan Cities/towns having value up to 45 Lacs .
b) A Residential House/flat of Carpet area of up to 60Sqm(645.835 sq ft.) in Metropolitan cities/towns having value up to 45 Lacs.
Note: Metropolitan cities are Bengalaru, Chennai, Delhi NCR (Limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (Whole MMR).
2. What is the Rate of GST on Housing Sector:
(a) @ 1% without ITC on Affordable Housing units (0.50% SGST and 0.50% CGST) as per above criteria
(b) @ 1% on affordable housing projects under the existing Central and state Government Housing scheme presently eligible for concessional rate of 8% GST (after 1/3 rd Land Abatement)
(c) @5% Without ITC on Non Affordable Housing Units (2.50%+2.50%)
3. What is the GST Rate on Commercial Properties:
@ 12% with ITC (No Change) (18% -1/3 rd deduction for Land) (Except 15% commercial space covered in Affordable Residential projects- on such commercial property 1% or 5% will be applicable).
4. How much area of commercial use is allowed:
15% of total carpet area of all residential apartments (Residential Real Estate Project-RREP)
5. What is the GST rate on TDR/JDA/Long term Lease premium, FSI
@ 18% but Exempted if used for residential property on which GST is payable. However GST need to be paid under RCM by the builder for the flats unsold as on the date of obtaining completion certificate.
6. What will be the GST rate for Existing ongoing Projects:
If builder has exercised the option to pay the tax in new regime then new rate shall be applicable for instalments payable on or after 01.04.2019.
7. What are the conditions for new rates:
a) Input Tax credit shall not be available
b) 80% of inputs and input services shall be purchased from registered persons.
c) On shortfall from 80% tax shall be paid by the builder @18% on RCM basis.
d) Tax on cement purchased from unregistered person shall be paid @ 28% under RCM.
e) Tax on capital Goods purchased from unregistered person shall be at applicable rates of that particular item.
f) Capital Goods, TDR/JDA, FSI, Long term Lease premium will not be counted for 80% .
g) How 80% will be calculated is not specified (Monthly/Yearly/Projectwise ). May be notified in Notification.
h) Purchases made from Composition dealers will also be counted in 80% purchase from registered dealer.
8. What are the transitional formula approved by GST council:
a) Based on percentage booking of flats and percentage invoicing ITC eligibility is determined.
b) For a mixed project ITC shall be allowed on Pro Rata Basis in proportion to carpet Area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 01.04.2019) to the total carpet area of the project.
c) Detailed Guidelines are expected to come in notification
9. What will be the Treatment of TDR/FSI/Long Term Lease premium :
(A) For New Projects:
a) Supply of TDR, FSI, Long term Lease premium of land by land owner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them.
b) If flats are sold after issue of completion certificate then 1% of value of affordable houses and 5% of value in case of Other then affordable houses has to be paid.
c) The liability to pay tax has been shifted from Land owner to Builder under the RCM.
d) The time of liability in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.
10. Liability in case of JDA:
The liability to pay tax on construction of houses given to land owner in a JDA is also shifted to date of completion.
11. New ITC rules:
New ITC rules will be notified shortly for calculation of ITC eligibility and reversal thereof.
12. Exercising of option for existing projects:
A one time option will be given to builders to pay tax at old rates which has to be exercise within time frame. If option will not be exercised then new rates will be apply. Date has not been notified.
Ongoing projects means where construction and actual bookings both have started before 01.04.2019 and not completed on 31.03.2019.
There is no option for projects starting from 01.04.2019.
13. Where it is beneficial to exercise the new option:
For this calculation has to be made project wise. Mainly Cost of Land, Cost of construction and stage of construction, Payment Received/Instalments due is relevant.
14. For same project having different towers whether different options available:
It is not clarified yet but it seems that it will be applicable for entire project. However if construction permission and completion certificate is obtained phase wise then each phase may be treated as separate project. We should wait for notification.
15. Whether Two Separate agreements can be made for land and Construction and charging GST @ 1% or 5 % on only Construction price:
In case of flat it is difficult because land is part of total consideration and in case of Bungalows/ Row House where land is separately registered ,it is not possible because only construction agreement will be covered under works contract and GST @ 18% will be applicable on such construction cost. Though there will be no GST on land sale value. So Industrial plotting developers / Other type of plot developers have to pay @ 18% on construction price.
16. Whether 1% or 5% can be recovered from client:
The above scheme are not covered as composition scheme but these are regular rates. In GST act composition dealers can not charge GST separately from customers. But there is no such restrictions in this scheme.
17. What will be the rate for Sea Facing/ River View/garden facing/preferential location/infrastructure/development charges collected by builder:
All these charges are part of composite supply along with flat. So GST @ 1% or 5% will be applicable on total value inclusive of above charges. Builder should take note that limit of 45 lakhs is inclusive of all these charges. However, expenses incurred by builder in pure agent capacity like electricity deposit, purchase of stamp papers will not be covered in value.
18. GST rate on flats sold after obtaining completion certificate:
There will be no GST if flat/shop is sold after obtaining completion certificate.
19. What will be the rate on construction services provided to landowner:
It will be covered under construction services and GST @ 18% will be charged by builder to landowner. However, notification is awaited for more clarification. GST on the above construction services will be due on the date of completion.
20. Whether the builder can revise the rates:
In our opinion, as the input tax credit will not be available, the cost of the builders may increase in some projects. So, the rates may be revised. There is no such restrictions.
21. Anti-profiteering:
Anti-profiteering may be applicable. The builder should prepare a chart for benefit calculation arising due to rate reduction and restriction on ITC.
Impact on Income Tax liability:
The Input Tax Credit(ITC) which has to be lapsed in existing projects will be cost for the builder and net profit and income tax liability will be reduced.
There are different definitions for affordable housing as per Income Tax Act, GST Act and subsidy purpose. So, the builder has to take care of all definitions.
Date of completion is very important and may effect income tax liability. The deemed rent is also chargeable to tax after two years from the date of completion. For landowner (Individual/HUF), there will capital gains tax liability on the date of completion.
Concluding remarks:
- Though the government wants to give benefit to lower cost houses, but under new scheme, effective GST will be more by 2% .
- On the premium projects where land value is high, effective GST will be less by 2%.
- The builder should take fast decision to opt for new/old scheme and accordingly has to try to collect maximum amount from customers before 01.04.2019.
Note: After issuing of notification by Govt, we will issue second part of the FAQs.
Note: The Author is a practicing Chartered Accountant since 1997 and has delivered in many seminars and conferences and also regular writer in Tax magazines and websites. He may be contacted at rbcknowledge@gmail.com
The views expressed are personal views of author.
Author Bio
If I booked a under construction flat and paid 50% amount with 12% GST and 50% amount with 5% GST. Will I get Input Tax Credit for GST paid @ 12% on 50% amount ?
Hi, i am under the new scheme for builders charging 5% GST and not availing any ITC. However, by mistake if I have availed ITC for the month of March, 2020 and I have credited balance amount in my cash ledger. What is the solution, do I have to reverse the ITC ? or what can be done
Hi, I have purchased commercial office on 15th May 2019, Can i claim ITC on GST paid by me for purchase of the same? The property is under construction.
I have purchased a flat which is under construction and nearly 65% amount has been made, Will I be eligible for GST benefit of 1% .
builder is asking for 6% for total cost my agreement cost is below 28 lakhs
Agreement Date – 16 .10.17
completion will be 31.05.19.
builder will provide any document or invoice for GST amount.
he was saying that GSt will applicable as per agreement date.
can we take gst @ 5% on service without itc
i just want to know the reversal of ITC claim in GST on ongoing residential projects.
1.how can we calculate the ITC reversal as on 31.03.2019 on ongoing projects ?
2.project was started in may-2009 and still continue, so how can we calculate reversal of GST ? if we continue with 5% or 1% wef 01.04.2019
OFFHAND
REF. “Concluding remarks:
1. ….
2. “On the premium projects where land value is high, effective GST will be less by 2%.”
< Not clear: what is excludible for land is an ad hoc one-third of the aggregate invioiced amounds of the agreed price; if so, why premium project or not shuld make a diference to effective charge of GST?
3. "The builder should take fast decision to opt for new/old scheme and accordingly has to try to collect maximum amount from customers before 01.04.2019."
Purport or import or practicality of the suggestion to realtor does not seem to make sense.
On the contrary, buyer would want to wait until after the CC's last taken decsions have been notified, and Rules finalised , so that he is certain about the impact of the new Rate with no ITC , in comparison to old rate without ITC.
May be the only reason for any realtor to prudently act fast is to avoid the possible interest consequence in case he has invoiced and collected amounts due towards the agreed price, on a gross basis, without reckoning and reducing the ITC due to him in respect of his 'INPUTS', hence exposed himself to consequences of violaion of the 'APR'. –
Author, a CA, may be pleased to enlightenpost haste.
Anyone else with a genuine doubt, wishing to share ?
Reduction in GST rate to home buyers
It is proposed to reduce the GST rate in case of apartment promoters. The cost of the house will come down for customers. It is the Govt. View.
Existing
Assume the cost of input Rs.100. There will be GST on it Rs.18. Assumed 18%. If the builder sells at Rs.115, he will charge Rs.20.7 as GST. Assumed 18%. The customer has to pay Rs.135.70. The builder collects Rs.20.7 and pays to Govt Rs.2.70 after deducting ITC Rs.18. The builders profit Rs.15 (115-100)
Proposed
Assume the cost of input Rs.100. There will be GST on it Rs.18. Assumed 18%. If the builder sells at Rs.115, he will charge Rs.5.75 as GST. Assumed 5%. The customer has to pay Rs.120.75 (115+5.75). The builder collects Rs.5.75 and pays to Govt without deducting ITC because ITC not allowed. The builder’s loss will be Rs.3 (115-(100+18). He won’t be satisfied. He will increase the price to Rs.133 to retain the same profit of Rs.15 (133-118). So the customer will have to pay Rs.133+6.75 GST. Total Rs.139.75
Result
Govt gets Rs.6.75 in the place of Rs.2.70. Gain Rs.4.05, more than double. The builder gets the same profit. The customer has to pay Rs. 4.05 extra. What a great idea of making affordable house. Govt wants the builder to pass on the benefit of reduction in GST rate to customers. Unable to understand what is the benefit builder gets. The real benefit goes to Govt. So the Govt shall pass on the extra tax of Rs 4.05 to the customer.