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Consequent to changes in the GST on real estate, there are many situational queries being faced by the industry. We address some of the queries through series of FAQs.

1. What could be different decisions making under the real estate sector for the residential apartments and the actions to be taken under each of such decisions?

B. Promoter opting to continue in the old scheme for ongoing project:

a. Intimate the department by 10th May, 2019 in Annexure IV of his decision to continue in the existing Scheme. The decision to be intimated separately for each of the project.

b. No need of working out for availment or reversal of credit at the time of such intimation

c. Continue charging tax @ 12% in case of residential apartment and 8% in case of affordable apartments. Old definition of affordable apartments to continue.

d. Reverse the credit under Rule 42/43 for each tax period. Such reversal has to be made based on the carpet area of the project.

e. Once the first occupation or occupation certificate/completeion certificate for the entire project, whichever is earlier, takes place – identify the credit pertaining to the unsold inventory as on such date. Avail or reverse the differential credit by comparing the credit to be reversed based on such computation viz a viz credit reversed at the end of tax period.

f. The credit computation to be done separately for project wise wherein transition credits taken in TRAN-1 and credit availed beginning from 1st July, 2017 till the date of OC to be taken. This requires identification of credit for each of the project separately. (If credit records maintained GSTIN wise in the earlier period, it has to be identified and reversed project-wise)

B. Promoter opting for new scheme in respect of ongoing project

a.  Intimate the department by 10th May, 2019 in Annexure IV of his decision to migrate in new scheme. Alternatively, do not intimate the department which itself would be presumed to be migration to new scheme.

b. Identify the eligibility credit at the time of migration to the new Scheme. Such eligible credit to be computed based on computation methodology given in Annexure I or Annexure II as the case may be.

c. If eligible credit > credit availed, avail the additional credit in the future period. (But where to use such credit as utilization of credit not allowed under 5% scheme. May be use for other ongoing projects where continued for the old scheme or for liability under commercial apartments)

d. If eligible credit < availed credit, reverse the extra availed credit by debit in electronics credit ledgers or by payment through electronics cash ledger

e. Such computation to be made and disclosed latest in the GSTR-3B of the month of September, 2019.

f. Start charging tax @ 5%/1% for all instalments in respect of which time of supply falls post 1.4.2019 and make compliance of 80% of purchase from registered persons.

g. At the time of first occupation or occupation certificate/completion certificate,– No need of any credit reversal pertaining to the unsold area as the credit has already been reversed at the time of migration to the new scheme and no new credits would have been taken.

Project-wise details to be submitted by 30th June of each year regarding the fulfilment of 80% of the purchase from registered persons

2. Project was started in Jan 2018. The builder has availed the credit on input, input services and capital goods and utilised against output liability on advance received from customer. The Occupation certificate is expected to be received in May 2019. Whether there is any requirement of ITC reversal. Presuming 30% of the area remains unsold on the date of OC?

  • Based on the assumption that he has opted for the concessional rate of tax, the builder has to reverse the input tax credit availed in terms of Annexure I – REP & Annexure II – RREP as the case may be. There would be no need to reverse the credit separately at the time of receipt of OC.
  • On the other hand, if the builder continues to remain under the existing scheme, the proportionate ITC has to be reversed monthly followed by reversal of ITC for the entire project based on carpet area sold pre and post OC.

3. What would be GST impact on the advances received prior to 1.4.2019 but the physical construction has not been completed to the extent of advances received and the builder has chosen new option of 5% for the payment of tax.

The tax liability is to be determined based on the provision of the time of supply irrespective of the physical completion of service. Where advances have been received prior to 1.4.2019, such advances would be liable to tax @ 12% even if the construction work was not completed to that extent by 31st March 2019. However, any money to be received on or after 1.4.2019 (unless TOS has taken place earlier) towards such project would be liable to 5% where builder has chosen new option.

4. Government has issued removal of difficulty order for the application of Section 17 (2) read with Rule 42 for the real estate project w.e.f. 1.4.2019. Does this mean that there is no need of reversal of credit under Rule 42 as percentage of carpet areas in respect if projects completed before 31st March 2019?

  • There was no enabling provision in the law to provide for the reversal of credit based on the area of construction. The removal of difficulty order has enabled the provision in the law based on which new rules have been issued.
  • Removal of difficulty order appears to have extended the power of government to adduce that Rule 42 reversals could be undertaken based on the area of construction of complex, building etc.
  • Removal of difficulty order read with Rule 42 appears to have extended the duration of the final reversals from financial year to the completion of the project. However, the said reversal as per the rule which is effective from 01.04.2019 would be required for all ongoing projects i.e. those projects which have not received the CC or first occupation has not happened before that date.
  • Relying on the decision of CESTAT in case of Alembic Limited, it could be said that ITC availed prior to amendment in Rule 42 would not be liable to be reversed in terms of the area basis reversal criterion for the project which have been completed on or before 31.3.2019.
  • Though, w.r.t. to projects that have been completed prior to 01.04.2019, the said reversal would have to be done on the basis of the rule 42 as existed prior to 01.04.2019 i.e. on the basis of the revenue.

s. A promoter has been engaged in development of various projects. He had paid tax of Rs. 2.5 crore on the inward supply of TDR in the month of January 2019 for a new project expected to start in the month of June 2019. No booking of flats have been received till 31st March, 2019. What would be impact of such credit in the scenarios of:

i. Such credit remains unutilized as on 31st March 2019

ii. The credit has been utilized as on 31st March 2019

Annexure I/II requires identification of eligible credit in respect of ongoing projects where promoter switches to the new Scheme as well as for new project which commences on or after 1.4.2019. As the project is expected to kick start in June 2019, it would require identification of eligible credit under Annexure I/II.

Based on the facts given in question, it appears that no physical work has been completed in the project. However, there is specific provision in Annexure I/II which provides that where percentage completion is zero but ITC has been availed on goods or services received for the projects on or prior to 31st March 2019, the percentage completion has to be worked out based on the certificate of architect which could have been achieved with the input services received and inputs in stock. Eligible credit has to be computed based on such percentage completion.

However, considering the fact that no bookings have been made and no tax has been paid on the outward supply, F2 (residential apartment booked before 31st March 2019/total residential apartment area) and F3 (Value of supply in respect of TOS falls before 31st March 2019/total value of supply booked before 31st March) in the computation formula becomes zero and accordingly no credit would be eligible for carry forward in such cases. Hence, the promoter is required to do the below:

a. Such credit remains unutilized: Reverse the credit by the end of September 2019 in GSTR-3B by debiting the same in ECL

b. Such credit has been utilized: Pay the ineligible credit by electronics cash ledger

The computation in the above manner is required to be made in respect of each of the credit which have been availed with respect to the ongoing projects or project expected to commence on or after 1st April, 2019.

(excerpts from the booklet titled “Practical Guide on New Scheme of Taxation for Real Estate” issued by Team Hiregange)

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May 2024