Practical Guide on GST impact on Real Estate

GST on real estate has been a contentious issue especially with real estate sector in India facing a challenging time over the last few years. Several representations were made to the Government for further simplification and reduction of rates, especially for residential real estate sector, in the hope that the same would bolster demand for that sector. In this regard the GST Council had made certain recommendations in its 33rd and 34th meeting, after which a series of notifications have been issued on 29.03.2019 which became effective from 01.04.2019. Brief summary of the new scheme is as below:

i. GST is applicable at the effective rate of:

a. 1% in case of apartments under affordable housing,

b. 5% for residential apartments, being non – affordable housing,

c. 5% for commercial apartments in projects with commercial area not more than 15%.

Affordable Residential Apartment is defined to mean residential apartments with carpet area not exceeding 60 sqm in metropolitan cities [covering Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata and Mumbai (whole MMR)]or 90 sqm in other places for which gross consideration does not exceeds Rs. 45 lakhs.

ii. With the new tax rates, Input Tax Credit shall not be eligible and any available ITC balance (accumulated net of reversal or from other business under the same registration) also cannot be used for payment of such GST liability. Further, the ITC on the purchases needs to be disclosed in Form GSTR- 3B as ineligible credit.

iii. This scheme mandatory for all new projects commencing from 1st April, 2019. However for the ongoing projects, onetime option is given to continue with the existing tax structure and mechanism.

iv. In case the developer wishes to continue with the existing scheme, he has to opt for the same by filing the prescribed form on or before 10th May 2019. However the invoice that needs to be issued from 1st April 2019 onwards has to contain the rate as per the option exercised.

v. The option of going into new scheme or continue with the existing scheme is based on the project and the said project is as per the meaning given for Real Estate Project under Real Estate Regulation Act (RERA).

vi. For the purpose of this scheme projects has to be identified as Residential Real Estate Project (RREP) or others. REEP is a project in which carpet area of commercial premise is not more than 15%. Such project including the commercial portion shall be treated as a residential project and the concessional GST rate of 5% shall will be applicable even for commercial apartments also.

vii. In projects which are not RREP, the benefit of concessional rate will be applicable only to residential apartments and not for commercial apartments.

viii. The promoter (as defined in RERA is adopted here as well) is entitled to pay the tax at the concessional rate as mentioned above.

ix. On the ongoing projects, wherein the promoter who opts to the concessional rate from April 2019, attributable input tax credit of GST including transitional credit to the extent of GST become payable before April 2019 has to be worked out notionally.

x. If the credit already availed is more than such credit worked out it has to be paid back immediately or on permission in 24 instalments along with interest. On the other hand if the credit already availed is less than credit notionally worked out, the difference amount can be availed out of future purchases. However such credit availed cannot be used for making payment of tax at concessional rate, it can be used for any other supplies on which GST is payable.

xi. In order to ensure compliance on suppliers (to promoters) front, additional condition is added as to procurements wherein it requires that 80% of the inputs and input services (except grant of development rights, long term lease of land or FSI, electricity, high speed diesel, motor spriit, natural gas) shall be procured from registered suppliers only (includes tax paid under reverse charge mechanism).

xii. In case of failure by the promoters any shortfall GST needs to be paid at the rate of 18% under reverse charge by the builder by 30th June of the next financial year, for a particular financial year.

xiii. It would be important to note that all purchases of cement from unregistered persons shall be liable under reverse charge basis at the rate of 28%, which has to be paid monthly. Once such tax is paid it would be considered as procurement form registered person while computing 80%.

xiv. In case of all capital goods purchased from un-registered persons by promoters, it would be liable for GST under reverse charge at the applicable rate of tax on such capital goods.

xv. Project-wise account of inward supplies needs to be maintained for supplies procured from registered suppliers and unregistered suppliers. Such details are to be electronically submitted on the portal before 30th of June of subsequent year in the prescribed form. [For smaller builders with multiple projects this may again be a challenge]

xvi. With respect to JDA (relating to residential real estate projects i.e. including projects where the commercial area is less than 15% of the total project area) entered into on or after 1st April, 2019, the Developer needs to pay GST on the built-up area handed over to Landowner (value shall be equal to the flats sold [registered] by developer to their customer nearest to joint development agreement) at the rate of 7.5% with 1/3rd deduction (effective rate 5%) for apartments in case of non-affordable housing and 1.5% with 1/3rd deduction (effective rate 1%) for apartments in case of affordable housing, it has to be paid at the time of obtaining completion certificate.

xvii. The above liability would arise on the date of issuance of completion certificate or first occupation, whichever is earlier. GST so charged shall be eligible as ITC in the hands of the Landowner in case the said flats are sold prior to issuance of completion certificate.

xviii. Further, the GST w.r.t. the transfer of development rights or FSI (including additional FSI) given to the Developer for such JDAs would be exempt to the extent of the units sold by the Developer from his share, prior to completion certificate or first occupation, whichever is earlier, and to the extent of the units remaining unsold as on such date, the Developer would be liable under reverse charge mechanism.

xix. The JDA (relating to other projects) entered on or after 1st April, 2019 would also be liable under reverse charge mechanism and such liability would arise on project completion only. Thereby, attempting to ease cash flows for this sector.

xx. Further, the existing ITC provisions have been amended to ensure that the ongoing projects would be required to reverse credit availed during the project execution from 1st Jul ’17 or project commencement, whichever is later, to the extent of the units sold after completion certificate or first occupation, whichever is earlier.

Note: It is very important for invoicing from 1^st April 2019 as per the option of either continuing under the earlier scheme or going for the new scheme, as decided. Once decided intimation to be given by 10^th May 2019 is also very important in case of continuing with the existing scheme.

Rate chart

*Apartments under Central and/or State housing Scheme – an apartment being constructed under any of the schemes specified in sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item (c) of item (vi), against serial number 3 of the Table in notification No. 11/2017-CT(R) dated 28.06.2017.