GST  structure on Real Estate Services relating to residential  and commercial apartments has drastically changed w.e.f. 01.04.2019.

The nature of Real Estate services is different from normal supply of services . For example , A builder intend to construct a complex or building and sale it to a buyer. It  is a supply  as per Para 5(b) of Schedule II of CGST Act . Such supply is taxable till the builder receives completion certificate. After obtaining completion certificate, it is considered as  exempt services . This is because, after completion of work or first occupant of the project  it become building and GST is not applicable on building.

The Government vide Notifications No. 3 to 8/2019-Central Tax (Rate) all dated 29th March, 2019 has introduced revised scheme which applies to residential and commercial apartments which are covered under RERA [Real Estate (Regulation and Development) Act, 2016].

Real Estate

The new scheme is compulsory for projects commenced on or after 1-4-2019. In respect of ongoing projects as on 31-3-2019, the promoter has option to shift to new scheme w.e.f. 1-4-2019 (without ITC) or continue under earlier scheme (with ITC).

In case of ongoing projects, , if the promoter intends to shift to new scheme (of 1%/5%) w.e.f. 1-4-2019, he is required to refund excess ITC availed as on 31-3-2019 or get credit of ITC less claimed as on 31-3-2019.

Where promoter opts to continue with old scheme and pay tax at full rate (8%/12%) after availing ITC, proportionate reversal of Input Tax Credit is required in respect of apartments remaining unsold as on date of completion or first occupation, whichever is earlier.

The reversal is required to be made on date of completion of project. Reversal should be as per rule 42 of CGST Rules in respect of inputs and input services and rule 43 of CGST Rules in respect of capital goods.

Such reversal will be on basis of carpet area and not on basis of value (first proviso to Rule 42(i) of CGST Rules, 2017 inserted w.e.f. 1-4-2019].

Para 5(b) of Schedule II of CGST Act  2017  covers real estate projects of residential and commercial apartments.

As per section 17(3) of CGST Act, value of exempt supply shall include sale of building where supply is made after obtaining completion certificate. For purpose of section 17(3) of CGST Act (proportionate reversal of ITC when taxable person is making both taxable and exempt supply), the expression “value of exempt supply” shall include sale of land or sale of building after completion certificate is obtained.

Section 17(3) of CGST Act envisages that apportionment of ITC between exempt supply and taxable supplies shall be on basis of value. However, on service of real estate of residential and commercial apartments such apportionment shall be on basis of area of construction of complex (Removal of Difficulties Order No. 04/2019-CT dated 29-3-2019 provides that such apportionment shall be on basis of area of construction of complex w.e.f. 01.04.2019).

Illustration :

Let us try to understand calculation of reversal amount with the help of an Illustration :-

Sl Description Symbol Value
(a) Total Input tax involved on input & input services in a tax period T 100 Lakhs
(b) Amount out of “T” attributable to Input & input services intended to be used exclusively for purposes other than business T1 10 Lakhs
(c ) Amount out of “T” attributable to Input & input services intended to be used exclusively for exempt supplies T2 15 Lakhs
(d) Amount out of “T” in respect of inputs on which credit is not available under section 17(5) [ineligible ITC] T3 05 lakhs
(e) Since (a) +(b)+(c) above is exclusive for non business , exempted and eligible purposes , it will not be credited to the electronic credit ledger . Amount of ITC credited to the Electronic Credit ledger shall be T-(T1+T2+T3) = 100-(10+15+5) C1 70 Lakhs
(f) Amount out of “T” attributable to Input & input services intended to be used exclusively for taxable  supplies. (Refer Note 1 ) T4 0
(g) Input tax credit left after attribution of input tax credit towards exclusives (exempted , non business , ineligible , taxable ) supplies  is a Common Credit . It means common credit has a component of credit used for taxable & exempted supplies both-.

T-( T1+T2+T3+T4) or (C1-T4)

C2 70 Lakhs
(h) Aggregate Carpet Area construction of which is exempt from tax E 500 SqM
(ha) Aggregate Carpet Area identified by the builder as unbooked E1 2500 Sq M
(i) Aggregate Carpet Area of the apartment in the project F 10000 Sq M
(j) The amount of input tax credit attributable towards exempt supplies = C2*(E1+E2) /F = 70*(500+2500)/10000 D1 21 Lakhs
(k) The amount of credit attributable to non-business purposes included in common credit shall be equal to five per cent of C2.

= 5% of C2

D2 3.5 Lakhs
(l) The remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business and for effecting taxable supplies =C2-(D1+D2)  = 70-(21+3.5) C3 45.5 lakhs

Input Tax Credit ( ITC ) to be reversed = amount of input tax credit attributable towards exempt supplies + The amount of credit attributable to non-business purposes included in common credit.       = D1+D2 = Rs 21 Lakhs + Rs 3.5 Lakhs = 24.5 Lakhs.

Note 1Refer Point (f) above :- In case of real estate projects of residential and commercial apartments, When builder receive input and input services,  it is impossible to identify its use for exclusive taxable purpose as  it will be commonly used during  construction of apartments and after receipt  of completion certificate . Hence, the value has to be taken as Nil at that stage. 

Final calculations of eligible ITC in case of real estate projects where no transition of ITC :Rules 42(3) to 42(6) of CGST Rules inserted w.e.f. 1-4-2019 make provisions for final calculations of eligible ITC in case of real estate projects or residential and commercial apartments.In case of supply of real estate services, the input tax determined under rule 42(1) shall be calculated finally, for each ongoing project or projects which commences on or after 1st April, 2019, which did not undergo or did not require transition of input tax credit consequent to change of rates of tax on 1st April, 2019.

The amount ‘C3’  ‘D1’and ‘D2’ shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax and declared in form GSTR-3B or through form GST DRC-03.

The amount equal to ‘D1’ and ‘D2’ shall be reversed by the registered person in form GSTR-3B or through form GST DRC-03. 

The value for a tax period shall be calculated for each project separately.

The Author can be approached at [email protected]

DISCLAIMER: The entire material or contents of this write-up/Article have been prepared on the basis of relevant provisions, Circulars and as per the information existing at the time of the preparation. While we endeavor to keep the information up to date and correct. We make no representations or warranties of any kind, express or implied. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided in the said write-up/Article for any purpose. The user of the information shall agree that the information is not a professional advice. IN NO EVENT I/WE SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM THE USE OF THE INFORMATION. The Said Write up- Article is just an interpretation from the view of Author.

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  1. vswami says:

    A REjoinder:
    I do lot of studies, discuss with experts and only after that, forward any article for the public domain.
    So please, let me know, where exactly you are finding confusion / incorrect views, I WILL FORWARD ALL THE RELEVANT BACKUP AND EXPERT’S INTERPRETATION OF THE LANGUAGE IN ACT.
    FONT supplied

    The response comment since posted , am sure, will be of help and guidance to the author in reviewing the contents of the write-up, in a wholesome manner- not just the selected portion commented upon.
    The post today on FB, which has been instantly shared by me with the Admn. of TAXguru pertains to the accounting and audit angles .
    The writer is requested to please make available to me the material (see the marked portion above, with FONT- with particulars of the source persons – ‘experts). That should enable me to suitably pursue the matter with ICAI ; and once again try and persuade the august body to come to the rescue of the members of the CA fraternity in practice, through a comprehensive guidance note, for THE COMMON GOOD.

  2. Anita Bhadra says:

    Please refer to Rule 42(6) & 42(3) – Reversal of ITC for unbooked apartments. The relevant portion of the said Rule is:-

    Rule 42(6) of CGST Rules

    Where any input or input service are used for more than one project, input tax credit with respect to such input or input service shall be assigned to each project on a reasonable basis and CREDIT REVERSAL pertaining to each project SHALL BE CARRIED OUT AS PER SUB-RULE (3).

    RULE 42 (3):- In case of the supply of services covered by clause (b) of paragraph 5 of the Schedule II of the Act, the input tax determined under sub-rule (1) shall be calculated finally, FOR EACH ONGOING PROJECT or …………………………………… the manner prescribed in the said sub-rule, with the modification that VALUE OF E/F SHALL BE CALCULATED taking the value of E and F as under:

    E= aggregate carpet area of the apartments, construction of which is exempt from tax plus aggregate carpet area of the apartments, construction of which is not exempt from tax, but WHICH HAVE NOT BEEN BOOKED till the date of issuance of completion certificate

  3. vswami says:

    OFFhand :

    Once an option is exercised- deciding to collect the higher rate , with ‘ITC’ benefit to the buyers, in my firm view, that is applicable to all the ongoing (under-construction) projects, of a realtor, as on the specified. date. And, is so applicable to all UNITS, in a given project, regardless of when anyone or more of those are sold or agreed to be sold to each buyer or a prospective buyer.
    In short, question of any reversal of of ITC, claimed and / or availed of by a realtor, at any point in time, makes no sense ; is rather a non-starter.
    Any view to the contrary has the obviously inevitable potential to muddle up further, with no scruples or sane thinking, the already previaling complexity/ chaos in the administration and enforcement of, apart from compliance with, the GST LAW/ the Rules thereunder. Hope the writer will, in her own interest, all said and granting, – as sincerely suggested in the reply mail already sent to her, – not mind but make a thourough study, to the end of an incisive understanding, before choosing to ask for more, – pity me- from anyone like me sharing own thoughts and viewpoints , only to serve the intended purpose of guidance (not misguidance) for THE COMMON GOOD; mainly of the impacted Buyers, uppermost in own mind.

    As already indicated to her, am now intent upon still pursuing the matter with the ICAI, in an attempt to bring about, if nothing else, consistent / uniform views being taken by co-members of the CA fraternity, who are, unlike me, in field practice; hence have a personal exposure need to be wary of. .


  4. vswami says:

    ADMN. / Writer
    Requested to closely/ mindfully review, swy THIS>
    “Where promoter opts to continue with old scheme and pay tax at full rate (8%/12%) after availing ITC, PROPORTIONATE REVERSAL OF INPUT TAX CREDIT IS REQUIRED IN RESPECT OF APARTMENTS REMAINING UNSOLD AS ON DATE OF completion or first occupation, whichever is earlier.”
    FONT – < to focus on the implication/ legal significance of each of- e.g. ''UNSOLD' ???
    To my mind/ in my firm conviction as shared earlier repeatedly, , there are gaping holes in the reading and undertstanding of what the LAW says. Suggest to make use of the material aplenty in public domain, – for that matter on this webste itself, – and bring about clarity ; instead of, making a negative contribution to the presently obtaining ENOUGH confusion (glaore) in the minds of the mostly gullible BUYERS' community !?

    BACK to ………………..

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September 2021