Sale of Land and Sale of Developed Plot of Land under GST

Dear Colleagues, Good day to you. I have received queries relating to ‘Real Estate Sector’. Particularly they are asking doubts on ‘Sale of Land and Sale of Development Plot’ under GST Law. Here I wrote an article to clarify our Colleagues doubts on the above subject at my best of knowledge.

Real Estate Sector is very important and is a dry area in the present situation. In the present days Real Estate Sector plays key role in the construction of a House (for domestic purpose) or for developing commercial properties  in the  unutilized area of land.  This is to earn fixed income to survive his family without facing financial difficulties at the age of 60 years and above in India. Government also planned to construct group housing to  give to weaker sections in large scale with the financial assistance from the government to live with their families with the support of State Government and Central Government in India.

Under GST, Real Estate Sector is an important service sector to generate revenue to the State and Central Governments. Prior to GST, Real Estate Sector is liable to discharge VAT to State Tax Authorities to the extent of material transfer portion and Service Tax to the extent of labour charges portion  to the  Service Tax Department to Central Government. Dealers in Real Estate faced many problems to complete their assessments from State VAT  Authorities and Central Service Tax Authorities.

 Real Estate people are not liable to pay GST on vacant land, On construction of Flats, Apartments and group housings and villas etc., they are  liable to pay GST.  But they are not liable to pay GST after getting completion certificate form  the concerned authorities.  Now  we are going to discuss the following topics in my article for your ready reference.

1. Tax liability on sale of Land and available exemptions as per Law,

2. How to determine place of supply, value and time of supply of Land as per GST Law,

3. Sale of Development Plot of Land and GST liability on it,

4. Applicability of GST on services provided by way Renting and Leasing of Land under Law, and

5. Availability of Input Tax Credit on supply of Land in  Real Estate Business under GST,

1.Tax liability on sale of Land and available exemptions as per Law:

Land is an immovable property. As per Schedule III of the CGST Act, land sale is neither considered a sale of goods nor a supply of services. The sale of land attracts stamp duty only. Sale of land does not come under the purview of GST and is not liable to pay GST.

The same has been clarified in its ruling by the Gujarat Advance Ruling Authority that GST is not applicable on the sale of land transaction only when it exclusively relates to the transfer of ownership of land. If the builder constructed a building without taking any advance against agreement and sells such building after getting completion certificate from the appropriate authority, under that circumstances builder is not liable to pay GST and not eligible to claim ITC on inward supply of goods and services.

Sometimes builders or developers are selling plots with providing electricity line, water line, drainage line and land leveling etc., under that circumstances builder or developer is liable to pay GST, because such structures would fall under the Schedule II, Para 5 Clause (b) definition of the CGST Act,2017.

2. How to determine place of supply, time of supply  and value of supply of Land as per GST Law:

(A) Place of Supply: As per Section 12(3) of the CGST Act,2017, the place of supply is the recipient’s Location. For Services related to immovable properties the property’s location is considered as a place of supply.

(B) Time of supply:  As per Section 13(2) of the CGST Act,2017, the time of  supply of services shall be the earlier of the following dates, namely:-

(a). the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 of CGST Act,2017 or the date of receipt of payment, whichever is earlier,

(b). the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of Section 31 of CGST Act,2017, or the date of receipt of payment, whichever is earlier ; or

( c). the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply,

PROVIDED that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess shall, at the option of the said supplier, be the date of issue of invoice relating to excess amount.

Value of supply: Section 15(1) says about the value of supply of goods and services shall be the transaction value. i.e. the price actually paid or payable. The conditions for accepting the transaction value:-

(a). supplier and the recipient of the supply are not related,

(b). price is the sole consideration for the supply.

So the value of supply is the price that the seller is charging from the buyer for the sale of goods or services. In case of land, Land is immovable property, so, GST is not liable to pay on sale of land. However,

If the builder or developer supplies land along with common amenities like providing Electricity, Water line, Drainage facility and Roads facilities as composite supply, under that circumstances he shall be liable to charge GST @18% on the value of amenities. He has to show land cost and amenities cost separately in the invoice .

3. Sale of Development Plot of Land and GST liability on it:- Schedule III of the CGST Act,2017, states that the sale of land does not attract GST because such transaction exclusively relates to the transfer of ownership of land, which is an immovable property. In this situation, the nature of the transaction should only be related to the sale of plot only.

If the developer or builder sells the plot providing with  basic facilities like land leveling, formation of roads, provide electricity facility, drainage line and water line etc., under that circumstance  such transaction amounts to the supplier of services. So, the substance of agreement between both parties is essential. If the developer or builder charges based on the super built-up area and not the exact measure of the plot, then it is assumed that he is collecting charges for land and standard like land leveling, formation of roads, provide electricity facility, drainage line and water line etc., such transactions are not in the amount to the sale of land but are considered the sale of developed plot, which amounts to rendering services.

So, as per Schedule II, Clause 5(b) of CGST Act,2017, construction of any complex, building or civil structure intended for further sale is considered as supply of service and is liable to GST except land cost.

4.Applicability of GST on services provided by way Renting and Leasing of Land under Law:- Under GST scenario, all types of supplies of goods and services or both, including sale, transfer, barter, exchange, lease, rental or disposal made for a consideration by a person in case of furtherance of business.

Schedule II, Para 2(a) of the CGST Act,2017” any lease, tenancy or license to occupy land is treated as supply of service. Sometimes the land owner has given land on rental basis on Long Term or Short Term lease basis.

GST Impact on Long Term Lease:- If a person has given  Land for long –term lease  for the purpose of using for Commercial purpose, under that circumstance such lease amount is liable to GST. The Hon’ble high court of Bombay held that  one –time premium paid for a long – term lease (30 years or more than ) of land is liable to pay GST @18%.

 So, if any person has given land for using for commercial purpose it is liable to discharge GST @18%.

GST Impact on Short Term Lease:- If a person has given a Land for short –term lease  for the purpose of using for Commercial purpose, under that circumstance such lease amount is liable to GST @ 18% .

These following categories of leasing of land are exempt from payment of GST Tax:- They are

(a) Upfront amount paid in case of a long-term lease of industrial plots or plots for the development of infrastructure for financial business provided by the Central or State Government or any other entity having 20% or more ownership of Central or State Government.

(b) Renting or Leasing of  agro machinery.

(c) If a person has given any vacant land on rental or lease basis with or without a structure incidental to its use. Thus, leasing of land by farmers for agricultural produce and industrial plots for the development of infrastructure for financial business are exempted for payment of GST Tax.

(d) If a person has given vacant land for using commercial purpose , such transaction is liable to pay GST Tax @18%.

5.Availability of Input Tax Credit on supply of Land in  Real Estate Business under GST: Section 17(5) of CGST Act,2017 has not permitted to claim ITC on inward supply of goods and services received by a taxable person for constructing an immovable property (Other than plant and machinery) even if used for the furtherance of business.

(i). If a person constructed for own purpose: As per section 17(5) of CGST Act,2017, if the taxable person carries out the construction on his own account and the same is used for the furtherance of business, ITC is not available on all inward supplies to construction an immovable Property.

(ii). In case of construction by a third party: As per Sec.17(5) of CGST Act,2017, ITC is not available on works contract services when supplied for construction of immovable property except plant and machinery.

(iii). If a taxable person paid Long Term or Short Term: As per Sec.16(1) of CGST Act, 2017, lease amount along with GST and having original Tax Invoice is eligible to claim Input Tax Credit (ITC).

Input Tax Credit (ITC) can be claimed only by a person who is in the same line of business and is using such service for further supply of works contract services.  Therefore, Input Tax Credit (ITC) on works contract service for construction of the immovable property is not allowed to the extent of its capitalization. Input Tax Credit (ITC) is available if the expense is of revenue in nature.

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