Construction of GST on Residential Flats
APRIL 25, 2018
By Vijay Kumar
What is the Rate
THE other day I accompanied a friend to a couple of builders who were selling ‘yet to be completed/constructed' flats. It was amazing to see and hear the vast amount of information that everybody possessed on GST. I heard a young housewife arguing with the builder on the rate of GST for the clubhouse. Another lady wanted to know why she can't buy the ready built flat and avoid GST. Yet another wanted to know whether she would get abatement if there were two transactions one for the undivided share in land and another for construction of the flat. From this builder, we moved to another builder, where there seemed to be a different set of GST procedures.
One builder told us that we have to pay 12% GST on Apartment & Amenities cost, while it is 18% on maintenance charges. The other builder told us that GST on the whole Consideration Amount was 12%, while it was 18% for Society and other charges. One gentleman wanted to know why they should charge 12% and 18% when they would get credit on the raw materials and services. Another person observed that it is against the Anti-profiteering rules.
There was absolute unanimity on the view that there would be no GST on the black amount to be paid to the builder and people were openly talking about the ‘black' portion of the consideration as if it was the whitest thing to do. I asked some of them, whether they were not afraid to talk about the black portion in white daylight. They told me, even if you are an Income Tax Officer or a judge, there is no way you can buy a house without paying some hard cash and 35% of the total consideration is a reasonable portion and after all, what is your problem when you pay less GST and less registration charges? Is it not painful to pay to the Government about 10 lakh rupees if you buy a house worth 50 lakhs and this fifty lakhs is already tax paid? The builder gets input tax credit and transfers the balance burden to the buyer. The poor first-time house buyer who pools up all his resources to own that dream house, ends up paying a huge 20% to the government. That is perhaps more than what the builder makes. This is what they call affordable homes!
In all these discussions, I, knowing fully well that discretion is the better part of valour, did not mention that I was a certified GST Practitioner! I dared not.
The Law: Scheme of Classification of Services
As per the Annexure to Notification No. 11/2017-Central Tax (Rate), dated 28.06.2017, the Scheme of Classification of Services for our buildings is like this:
|
Annexure: Scheme of Classification of Services
|
|
S.No.
|
Chapter, Section, Heading or Group
|
Service Code (Tariff)
|
Service Description
|
|
(1)
|
(2)
|
(3)
|
(4)
|
|
1
|
Chapter 99
|
|
All Services
|
|
2
|
Section 5
|
|
Construction Services
|
|
3
|
Heading 9954
|
|
Construction services
|
|
4
|
Group 99541
|
|
Construction services of buildings
|
|
5
|
|
995411
|
Construction services of single dwelling or multi dwelling or multi-storied residential buildings
|
|
6
|
|
995412
|
Construction services of other residential buildings such as old age homes, homeless shelters, hostels and the like
|
|
7
|
|
995413
|
Construction services of industrial buildings such as buildings used for production activities (used for assembly line activities), workshops, storage buildings and other similar industrial buildings
|
|
8
|
|
995414
|
Construction services of commercial buildings such as office buildings, exhibition and marriage halls, malls, hotels, restaurants, airports, rail or road terminals, parking garages, petrol and service stations, theatres and other similar buildings
|
|
9
|
|
995415
|
Construction services of other non--residential buildings such as educational institutions, hospitals, clinics including veterinary clinics, religious establishments, courts, prisons, museums and other similar buildings
|
|
10
|
|
995416
|
Construction services of other buildings nowhere else classified
|
|
11
|
|
995419
|
Services involving repair, alterations, additions, replacements, renovation, maintenance or remodeling of the buildings covered above
|
And this Notification No. 11/2017-Central Tax (Rate) in Para 4(ii) stipulates that Reference to "Chapter", "Section" or "Heading", wherever they occur, unless the context otherwise requires, shall mean respectively as "Chapter, "Section" and "Heading" in the annexed scheme of classification of services (Annexure).
Sl. No 3 of the Notification No. 11/2017-Central Tax (Rate), gives the rate of CGST as 9% for our flat, which would mean the CGST and SGST together would be 18%.
|
Heading 9954
(Construction services)
|
Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
(Provisions of paragraph 2 of this notification shall apply for valuation of this service)
|
Now try to understand this:
1. Construction of a complex, building, civil structure or a part thereof,
2. including a complex or building
3. intended for sale to a buyer,
4. wholly or partly,
5. except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or
6. after its first occupation, whichever is earlier.
Don't be put off by the 18% GST Rate; please read the highlighted portion - (Provisions of paragraph 2 of this notification shall apply for valuation of this service).
Now the para 2 of the notification states
2. In case of supply of service specified in column (3) of the entry at item (i) against serial no. 3 of the Table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply .
Explanation.– For the purposes of paragraph 2, "total amount" means the sum total of,-
(a) consideration charged for aforesaid service; and
(b) amount charged for transfer of land or undivided share of land, as the case may be.
So, the value has to be the amount you pay for the service of construction and the land and the value of the land is taken as one third of the total amount. So, you need to pay only two thirds of the tax which means two thirds of 18% which is 12%.
But if they collect separate charges for clubhouse, swimming pool, car parking, corpus fund, legal charges, should the buyer pay GST on all these charges and if so, at what rate - 12% or 18%?
But come back to the basic question. Is ‘construction service' a supply of goods or services or both? The Law has an answer:
As per Clause (b) of paragraph 5 of Schedule II of the CGST
(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
is to be treated as Supply of services.
What is construction ? If you have such silly doubts, the law provides reasonable answers.
Explanation 2 to the above clause explains - the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure ;
And who is the 'competent authority' to issue the ‘completion certificate'? Explanation 1 to the above clause clarifies:
(1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely: -
(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
But is sale of land covered under GST?
The answer is an emphatic NO, with a rider of course .
Schedule III of the CGST Act lists activities or transactions which shall be treated neither as a supply of goods nor a supply of services and para 5 of this schedule covers
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
This would also lead to a conclusion that there would be no GST on ready to move in or completed property, subject to those conditions of occupancy and or certificate.
A recent study by a top consulting firm stated that the GST would depend on even the location of the project. Will the GST rate change according to location? A story in the ‘Indian Express' last week stated, "As the GST varies from item to item and also from location to location, builders are calculating the whole amount and charging buyers." Reacting to this, another newspaper reported, "GST rate cannot vary from location to location unless the builder is economical with the truth ", but added," There exists a mistaken view that ready-to-occupy flats with occupancy certificates (OCs) are free from GST. And that builders charging a GST on such ready-to-occupy flats are cheating buyers." This reporter with absolute clarity pronounced, "But contrary to ill-informed or deliberate propaganda, there is no escaping GST for those stepping in when a flat is ready unless of course the builder, unable to sell, reduces the price and markets the deal as ‘GST saved'."
Another newspaper reported, "Transfer of completed property is not considered as rendering services to a buyer and thus does not attract GST. So, if you buy a completed property, it will help you save money in form of tax." True if your builder is an ass. If he is an assessee, he can't afford to be one.
GST is simple, all the answers are there in the Laws – search and you shall find. I wonder how those little ladies with stars in their eyes, hope in their hearts, a child on their hips and a thoroughly disgusted husband in tow, going from builder to builder for that dream house, know so much about GST.
Only the experts are confused.
Capitalizing on Good Times
The International Monetary Fund (IMF) in its Fiscal Monitor: Capitalizing on Good Times (April 2018) states on India's GST :
|
Fiscal consolidation was paused in fiscal year 2017/18 at the federal level as the economy recovered from disruptions related to demonetization and the rollout of the new national goods and service tax. Relatively buoyant revenues supported by base-broadening efforts and lower capital expenditures were offset by higher spending (including higher compensation to states for the rollout of the new goods and service tax) and lower profit transfers from the Reserve Bank of India due to costs incurred during the demonetization.
|
|
Consolidation is expected to resume in fiscal year 2018/19 and after, but further measures—including to ensure smooth implementation of the new goods and services tax, reductions in fuel and food subsidies, and tax reforms—are needed to support it over the medium term.
|
|
In India, a return to a gradual path of growth-friendly fiscal consolidation is desirable to create fiscal space, but full and smooth implementation of the new goods and services tax is necessary to avoid tax revenue under performance resulting in cuts to capital expenditures.
|
|
In fiscal year 2017/18, the government introduced the goods and services tax and maintained a single portal through the Goods and Services Tax Network, a nonprofit organization. The portal helps to reduce tax evasion because the central government can trace transactions and match invoices of taxable goods sold against all the taxable supplies bought by companies.
|
Make the process of doing business easy in our country – CBIC Chairman's Call
In her weekly letter dated 20.04.2018, to the officers of the Department, the CBIC Chairman, Ms Vanaja Sarna says,
The e-way bill system is well under way with 20 days of roll out of the inter-state system and 12 states now covered under the intra-state e-way bill system. It is heartening to see that the implementation is going on smoothly and since its introduction on 1st April, 2018, more than one and a half crore e-way bills have been generated. After the roll-out of e-way bills for intra-state movement in six states, the average number of e-way bill generation has crossed eleven lakh per day. As and when the same gets implemented in other States, this number is expected to rise significantly. Hence, I would urge the Chief Commissioners of concerned zones to continuously monitor the issues. Real-time monitoring along with providing immediate solutions will definitely help us in realizing our objective of making the process of doing business easy in our country .
But Madam, your letterhead still shows your Board as "Central Board of Excise & Customs".
