The Central Government vide Notification No. 07/2019 -CT( RATE) dated 29.03.2019 specified that the promoters are required to pay tax under Reverse Charge Mechanism ( RCM ) in respect of shortfall from the minimum value of goods or services or both required to be purchased for construction of project.
Minimum value for the purpose is prescribed as 80% of the value of input & input services
Services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI) are excluded for calculating 80% procurement limit
Further , As per Notification No. 24/2019-Central Tax (Rate) dated 30th September, 2019. Any value of cement purchased from an unregistered person by a promoter would be liable in his hands under RCM irrespective of the threshold limit. Promoter shall pay tax under RCM at the applicable GST Rate .At present GST Rate of Tax for cement is 28% .This tax will be paid under RCM in the same month of purchase.
After considering payment of GST on cement under reverse charge (if any), at least 80% of the procurement of inputs and input services used in supplying the real estate project service shall be received from registered supplier only.
In case requirement of procurement of 80% from registered suppliers is not achieved, and there is a shortfall in procurement from registered supplier , GST @18% is payable on value to the extent of shortfall.
Example 1 : A promoter purchased 60% of input and input services from registered supplier. 15% Cement & 25 % other input & input services received from unregistered person, during financial year 2019-20
| (a) | Promoter is required to purchase at least 80% from registered person. | 80% |
| (b) | His purchased from registered supplier is | 60% |
| (c) | He is liable to pay under RCM for total purchase of Cement
from unregistered person ( irrespective of % total purchase ) |
15% |
| (d ) | Other purchases from unregistered person | 25% |
| (e) | Liable to pay under RCM on shortfall a-(b+c) 80% – ( 60% + 15% ) | 5% |
Any value of Cement purchased from an unregistered person by a promoter would be liable in his hands under RCM irrespective of the threshold limit : In the above example , even if purchased from registered supplier is 82% , promoter is still liable to pay on purchase of cement ie 15% under RCM .
Inputs and input services on which tax is paid by promoter under reverse charge under sec 9(3) shall be deemed to have been procured from registered person
Example 2 :
| (a) | Promoter is required to purchase at least 80% from registered person. | 80% |
| (b) | His purchased from registered supplier is | 60% |
| (c) | He is liable to pay under RCM for total purchase of Cement from unregistered person ( irrespective of % total purchase ) | 15% |
| (d ) | Input services on which tax is paid under reverse charge under sec 9(3) | 13% |
| (e) | Other purchases from unregistered person | 12% |
| (e) | Liable to pay under RCM on shortfall a-(b+c+d) 80% – ( 60% + 15%+13% ) No shortfall as total of (b+c+d is 88%) that crossed limit of 80% | NIL |
Purchase from Composition Dealers : Input & input services from composition dealer shall be considered as purchase from registered person paying taxes under composition scheme .
Period for Calculation : The promoter shall maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax payments on the shortfall at the end of the financial year and shall submit the same in the prescribed form electronically on the common portal by end of the quarter following the financial year.
The tax liability on the shortfall of inward supplies from unregistered person so determined shall be added to his output tax liability in the month not later than the month of June following the end of the financial year.
Input Tax Credit not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B
The calculations are to be done financial year-wise. The excess percentage of purchased from registered suppliers in a year cannot be adjusted in a next financial year
Example 3 :
Financial year 2019-20
| (a) | Promoter is required to purchase at least 80% from registered person. | 80% |
| (b) | His purchased from registered supplier is | 76% |
| (c) | He is liable to pay under RCM for total purchase of Cement from unregistered person ( irrespective of % total purchase ) | 15% |
| (d ) | Other purchases from unregistered person | 10% |
| (e) | Liable to pay under RCM on shortfall a-(b+c) 80% – ( 76% + 14% ) | NIL |
Financial year 2020-21
| (a) | Promoter is required to purchase at least 80% from registered person. | 80% |
| (b) | His purchased from registered supplier is | 60% |
| (c) | He is liable to pay under RCM for total purchase of Cement from unregistered person ( irrespective of % total purchase ) | 14% |
| (d ) | Other purchases from unregistered person | 25% |
| (e) | Liable to pay under RCM on shortfall a-(b+c) 80% – ( 60% + 15% ) | 5% |
In respect of financial year 2020-21, there is short fall of 5% in supplies received from unregistered person. Hence, the promoter is liable to pay GST on 5% @ 18% under reverse charge. Excess of 2019-20 cannot be adjusted in 2020-21
RCM on purchase of Capital Goods : Promoter is also liable to pay GST under reverse charge on Capital goods supplied to promoter by unregistered person for construction of a project ( Notification No. 07/2019-CT (Rate) 29-3-2019 effective from 1-4-2019.
Example 4
| (a) | Promoter is required to purchase at least 80% from registered person. | 80% |
| (b) | His purchased from registered supplier is | 82% |
| (c) | He is liable to pay under RCM for total purchase of Cement from unregistered person ( irrespective of % total purchase ) | 5% |
| (d ) | Capital Goods purchased for unregistered supplier | 10% |
| (e) | Other purchases from unregistered person | 3% |
| (e) | Liable to pay under RCM – Promoter is liable to pay GST under RCM on purchase of cement & Capital Goods in spite of his purchased from registered supplier exceeds | 80% |
Inward supplies of exempted goods/services shall be included in the value of supplies from unregistered persons while calculating threshold of 80% – FAQ (Part II- issued by CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019 )
GST Rate : The GST Rate is 18% even if the actual rate of GST in case of some of inputs or input services is lower than 18% – (Sr No. 452Q of Schedule III of Notification No. 08/2019-CT (R) dated 28-6-2017 as inserted w.e.f. 1-4-2019.)
The author can approached at caanitabhadra@gmail.com
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whether payment for daily wages to be considered for calculating 80% limit?
Where is that form to be filed for paying off shortfall as RCM? Is this form notified as on date or it is to be notified by the end of the month?
What abt interest paid on unsecured loans to individuals? whether that is to be considered as unregistered supply?
Dear Madam,
I’am so thank full to your clarification regarding the cement purchases from unregistered dealer where the promoter has to pay under RCM on entire cement purchases from him irrespective of percentage.
Ma’am,
In Example No. 3 for FY 2020-21
Liable to pay under RCM on shortfall
a-(b+c) 80% – ( 60% + 14%)=6%
It should be 14% instead of 15%.