Real estate is one of the globally recognized sectors. Affordable housing sector got a boost with Budget 2019 and Government agenda on Housing for All. For GST purposes, let us segregate the real estate transactions into following
Affordable housing segment:
Existing GST rate on Affordable housing is 1% (previously it is 8%) with a condition that Input tax credit is not available for real estate developer. To Qualify as affordable housing, the flat/house value should not exceed 45 lacs and Area should not exceed 60 sqm in Metros and 90 sqm in non-metros. Another condition is that the developer should procure 80% of his inputs and Input services from GST registered dealers only.
Residential other than Affordable housing segment:
Existing GST rate for these projects is 5% (previously it is 12%) with a condition that Input tax credit is not available for real estate developer. The same condition that the developer should procure 80% of his inputs and Input services from GST registered dealers applies here also.
Commercial Apartments such as shops, offices e.t.c.,
These projects can be classified in to following
1. Commercial apartments constructed along with other Residential Apartments where carpet area of the commercial apartments is not more than 15% of total carpet area of all apartments. For these apartments, GST rate is 5% with condition of non-availability of Input tax credit.
2. Commercial apartments constructed along with other Residential Apartments where carpet area of the commercial apartments is is more than 15% of total carpet area of all apartments. For these commercial apartments GST rate is 12%. Input tax credit can be claimed while paying GST.
3. Purely Commercial projects – GST rate is 12% and Input tax credit can be claimed.
Also check out:
GST on Real Estate Sector- 41 FAQs (Part I)
Completed Real estate projects
As per Schedule III of GST law, No GST is leviable on Sale of completed projects. It means if a developer sells a flat/house after completion certificate is obtained from prescribed authority, then no GST is charged. Normally Developers lease the unsold flats. Hence GST is payable only on rental/lease income.
Development of Plots:
In Plot development, the following are done like levelling the land, construction of boundary wall, construction of roads e.t.c. In line with case of M/s Larsen & Toubro Limited vs State of Karnataka (Supreme Court 2013), it is possible to do tax planning If separate agreement was made to segregate the value of plot and value of development with the customers. In this case, [email protected]% on Development charges is charged. The agreement with customer is the key.
Other Commercial Real estate:
All the other commercial real estate was charged GST @ 12% (Actually 18% but after abatement of 1/3rd for land value, net comes to 12%). Input tax credit is available.
Input tax credit:
Other than projects that come under 1% or 5% rate, for all others input tax credit is available on Inputs, Input services and capital goods if used for the purposes of business. But before claiming input tax credit, one should satisfy the conditions mentioned in section 16(2) & 16(4) and beware of blocked credits under section 17(5).
Anti – Profiteering rules:
Anti-profiteering rules will affect and continue to affect the real estate industry. The main emphasis of anti-profiteering is as follows
1. If there is reduction in rate of tax on the supply of goods or services or
2. Benefit of input tax credit is now available under GST
Then the registered person shall pass the benefit to the consumers by reducing prices.
Recent case of Sahil Mehta vs Salapuria real estate (p) Ltd – National Anti-Profiteering Authority shows that litigation in respect of these rules will be cumbersome.
Stock and Asset Transfers:
It is very common practice in real estate sector to move their stock or assets from one project to another. Given different tax rates and conditions for claiming Input tax credit for various projects, proper maintenance of records is necessary. In GST regime, Interstate movement of goods are taxable. Valuation issues arises when moving stock.
GSTR 2A Reconciliation:
Input tax credit reconciliation is a hot topic, not only among real estate companies, but for almost all GST registered dealers. Given the bulk transactions in real estate and that too from vast number of suppliers, to match each and every invoice became a Hercules task. This reconciliation problem may not arise in future for some projects where input tax credit is not available.
Unless stamp duty is subsumed under GST, litigation in real estate sector continues. We hope government will come with a notification/circular giving clarifications on some unresolved issues in real estate like taxability of TDR, Joint development rights e.t.c.,