GST Rate changes for Real Estate - An overview
APRIL 05, 2019
By CA Ankit Kanodia, S.K.Kanodia & Associates, Chartered Accountants
 Overview :
TO boost demand in the real estate sector, the GST Council, in its 33 rd Council meeting held on February 24, 2019, recommend slashing of tax rates for under-construction flats to five per cent and affordable homes to one per cent, effective April 1, 2019. The GST Council in its 34th meeting held on 19th March 2019 has taken decision for implementation of the recommendation made in its 33 rd meeting for lowering effective GST rate on real estate sector.
Currently, the Goods and Services Tax (GST) is levied at 12 per cent with input tax credit (ITC) on payments made for under-construction property or ready-to-move-in flats, where the completion certificate is not issued at the time of sale. For affordable housing units, the existing tax rate is eight per cent.
To implement the changes, the GST Council on 29.03.2019 has amended Notification No. 11/2017-Central Tax (Rate) as amended vide Notification No. 03/2019- Central Tax (Rate) dated 29th March, 2019 which are summarised below.
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S.No
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Notification No.
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Particulars
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Rate(Effective Rate)
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Conditions to be Satisfied
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1.
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New GST Rate of Construction of Residential apartments in Residential Real Estate projects or in Real Estate projects which commences on or after 1st April, 2019 or in an ongoing RREP/REP in respect of which the promotor has not exercised option to pay tax old rates as the case may be, in the manner prescribed therein, 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, are:
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Affordable Residential Apartments: 1.5% (1% i.e after 1/3 rd deduction on account of value of land)
Other than Affordable Residential Apartments: 7.5% (5% i.e after 1/3 rd deduction on account of Value of land)
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GST @1% or 5% shall be paid in cash that is, by debiting electronic cash Ledger.
Points to Ponder:
- No ITC on goods or service used in Construction except as prescribed by formula (Refer Note)
- An amount equivalent to ITC attributable to construction in a project, whose TOS is on or after 01.04.2019, as prescribed by formula in Notification shall be paid by way of Electronic cash ledger or Electronic credit Ledger.
- 80% of the inputs or input service shall be received from the registered supplier during the FY (or part of the FY till the date of issuance of completion certificate or first occupation of the project, whichever is earlier. In case it falls short, tax shall be paid by the developer under RCM vide Notification No. 07/2019- Central Tax(rate) dated 29th March, 2019.
- The promoter shall maintain project wise account of inward supplies from registered & unregistered supplier & Calculate tax payments on the shortfall at the end of the FY.
- Tax on cement received from unregistered supplier shall be paid @28% in the month in which cement is received under RCM.
- ITC not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B [Row No. 4 (D)(2)]
- Developer to pay Tax in case of JDA
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Our Comments:
Notification No. 07/2019- Central Tax (Rate) dated 29.03.2019 prescribes the category of service-recipient and goods which shall be covered under section 9(4) of the CGST Act, on which tax shall be paid by the developer. Further Notification No. 08/2019- Central Tax (Rate) dated 29.03.2019 has been issued to specify the rate of tax to be paid by the developer of receipt of goods (other than capital goods and cement falling under chapter heading 2523 of the custom tariff act) from the unregistered dealers (New insertion in S. No. 452Q in Scheduled III of NN 11/2017)
Moreover, while calculating total value of inputs and input services following should be excluded:
- Services by way of grant of development rights, long term lease of land or FSI (including additional FSI)
- Electricity
- High speed diesel, motor spirit, natural gas
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2.
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"In respect of On-going Project"
As per clause(ie)(for civil structure and other affordable housing schemes) & (if) (for construction of commercial spaces or residential apartments other than affordable housing scheme), the promoters shall be given a one -time option to continue to pay tax at the old rates (effective rate of 8% or 12% with ITC)(see note ).
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12%/18% (8%/12% i.e after 1/3 rd deduction on account of value of land respectively for (ie) & (if).
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- One time option in the given form is exercised to pay tax @12%/8% effective GST Rate by 10th May 2019 (Project wise option)
- If the option is not exercised as above then, option to pay tax at the effective GST rate of 1%/5% shall be deemed to have been exercised.
- Invoices issued for supply of the service during the period from 1 st April 2019 to 10th May 2019 before exercising the option shall be in accordance with the option to be exercised.
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Our Comments
As per para 6.2 of the press release, if the builder opts for new tax rate (in an ongoing project), the company will be entitled to only proportionate credit, based on percentage completion of construction, percentage booking of flats & percentage invoicing.
As per 6.3 of the press release, in respect of the
"Mixed Project= Commercial Property + Residential property", the company will be entitled to transitional credit on pro-rata basis, based on carpet area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 1.4.2019) to the total carpet area.
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3.
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Composite supply of works contract other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments, in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the developer has not exercised option to pay central tax on construction of apartments at existing rate
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12%
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- Carpet area of affordable residential apartment is not less than 50% of the total carpet area of all the apartments.
- For the purpose of determining whether the apartments at the time of supply of the service are affordable residential apartments covered by subclause (a) of clause (xvi) of paragraph 4 or not, value of the apartments shall be the value of similar apartments booked nearest to the date of signing of the contract for supply.
- In case, Carpet area of the residential affordable apartment is less than 50% of the total carpet area of all the apartment in the project, the recipient of the service i.e the developer shall be liable to pay such amount of tax on RCM as is equal to the difference between the tax payable on the service at the applicable rate but for the rate prescribed herein and the tax actually paid at the rate prescribed herein.
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4.
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supply of services other than 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) by an unregistered person to a developer for construction of a project on which tax is payable by the recipient of the services under sub- section 4 of section 9 of the Central Goods and Services Tax Act, 2017.
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18%
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5.
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Construction of commercial apartments (shops, offices, godowns etc.) by a promoter in an RREP which commences on or after 1 st April, 2019 or in an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if) below, as the case may be, in the manner prescribed therein, 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
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7.5(5%)
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Our Comments:
It must be noted that 1% rate will not apply to such commercial apartment, they will be taxed @5%. All other commercial premises (i.e Commercial apartments in REP) which do not fulfil the above criteria will be taxed at old rate i.e 12%.
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GST on JDA
As per Not. No. 3/2019 it is stated that:
‘Provided also that where a registered person (landowner- promoter) who transfers development right or FSI (including additional FSI) to a promoter (developer- promoter) against consideration, wholly or partly, in the form of construction of apartments, -
(i) the developer- promoter shall pay tax on supply of construction of apartments to the landowner- promoter, and
(ii) such landowner - promoter shall be eligible for credit of taxes charged from him by the developer promoter towards the supply of construction of apartments by developer- promoter to him, provided the landowner- promoter further supplies such apartments to his buyers before issuance of completion certificate or first occupation, whichever is earlier, and pays tax on the same which is not less than the amount of tax charged from him on construction of such apartments by the developer- promoter.
Our Comments:
The Notification states that ‘developer- promoter' shall pay tax on supply of construction of apartments to the landowner- promoter'. Further, it additionally states that the ‘landowner- promoter' shall be entitled to claim credit of taxes charged by developer provided:
a. ‘Developer- promoter' charges GST
b. GST payable on such units by ‘landowner- promoter' should not be less than amount charged by ‘Developer- promoter'
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6
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After serial number 41, 41A & 41B shall be inserted:
41A. Serviceby way of TDR or FSI(including additional FSI) on or after 1st April, 2019 for construction of residential apartments by a promoter in a project, intended for sale before occupation certificate.
41B. Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of Service by way granting of long term lease of thirty years, or more, on or after 01.04.2019, for construction of residential apartments by a promoter in a project,, intended for sale before occupation certificate
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NIL
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- GST to be paid by the promoter on RCM under section 9(3) of the CGST Act (Vide Notification No. 05/2019-Central Tax (Rate)- dated 29th March 2019) on the value attributable to the residential apartments remaining un-booked as on the date of issuance of CC or first occupation, whichever is earlier.
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FORMULA FOR CALCULATION OF GST UNDER RCM GST
shall be paid under RCM on the value lower of the following:
- [GST payable on TDR or FSI (including additional FSI) or both for construction of the residential apartments in the project but for the exemption contained herein] x (carpet area of the residential apartments in the project which remain un- booked on the date of issuance of completion certificate or first occupation ÷ Total carpet area of the residential apartments in the project)
- 1% of value in case of affordable houses and 5% of value in case of other than affordable house remaining un-booked.
Time of Supply is issuance of Completion Certificate or its first occupation, whichever is earlier vide Notification No. 06/2019-Central Tax (Rate)- dated 29th March 2019.
In case of Mixed project (i.e Residential Property + Commercial Property) amount of GST exemption available for construction of residential apartments in the project under this notification shall be calculated as under:
[GST payable on TDR or FSI (including additional FSI) or both for construction of the project] x (carpet area of the residential apartments in the project ÷ Total carpet area of the residential and commercial apartments in the project)
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Relevant Definitions:
- The term "Residential Real Estate Project (RREP)" shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP;
- The term "Real Estate Project (REP)" shall have the same meaning as assigned to it in in clause (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016)
"real estate project" means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto;
- "On-going Project":
1. Commencement certificate is issued on or before 31 st March 2019
2. Where commencement certificate is not required, certified by any of the specified authorities that construction of the project has started on or before 31 st March 2019
3. Completion certificate has not been issued or first occupation of the project has not taken place on or before 31 st March 2019
4. Apartments partly or wholly booked on or before 31st March 2019.
- "Apartment Booked on or Before 31st March, 2019"
1. Part of supply of construction of which has Time of Supply on or before the 31 st March,2019
2. At least one instalment has been credited to the bank account of the registered person on or before the 31 st March,2019
3. An allotment letter or sale agreement or any other similar document evidencing booking of the apartment has been issued on or before 31 st March,2019.
- "Affordable Housing Project"
1. A residential apartment in a project which commences on or after 1st April,2019 or in an on-going project where option has not been exercised, for which the gross amount charged is not more than 45 Lakhs rupees having
Carpet Area of up to 90 Sqm in Non-metropolitan cities/town
Carpet Area of up to 60 Sqm in metropolitan cities
2. Houses being constructed in ongoing projects under the existing Central & State housing schemes presently eligible for concessional rate of 8% GST (after 1/3 rd land abatement).
- "Developer-promoter" is a promoter who constructs or converts a building into apartments or develops a plot for sale ,
- "landowner- promoter" is a promoter who transfers the land or development rights or FSI to a developer- promoter for construction of apartments and receives constructed apartments against such transferred rights and sells such apartments to his buyers independently. '
- "Value of Supply of Service by way of transfer of development rights or FSI" by a person to the promoter against consideration in the form of residential or commercial apartment shall be deemed to be equal to the value of similar apartment charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.
- "Value of portion of residential or commercial apartment remaining un-booked" on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartment charged by the promoter from the independent buyers nearest to the date of issuance of completion certificate or first occupation, as the case may be.
SUMMARY
| New Projects on or after 01.04.2019 |
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S.No
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Category
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Eff.GST Rate
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Condition
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1.
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Commercial Projects
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12%
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With ITC
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2.
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Residential Projects
- Non-Affordable
- Affordable
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5% 1%
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No ITC
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3.
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Mixed Projects (Commercial or residential apartments) Commercial Apartment <15% (RREP)
- Commercial
- Non-Affordable Residential - Affordable Residential
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5% 5% 1%
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No ITC
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4.
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Mixed Projects (Commercial or residential apartments) Commercial Apartment >15% (RREP)
- Commercial
- Non-Affordable Residential
- Affordable Residential
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12% 5% 1%
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Proportionate ITC
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Ongoing Projects (Option not exercised for old rates)
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S.No
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Category
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Eff.GST Rate
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Condition
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| 1. |
Commercial Projects |
12% |
With ITC |
| 2. |
Residential Projects
- Non-Affordable
- Affordable
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5%
1%
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No ITC |
| 3. |
Mixed Projects (Commercial or residential apartments) Commercial Apartment <15% (RREP)
- Commercial
- Non-Affordable Residential
- Affordable Residential
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5%
5%
1%
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No ITC |
| 4. |
Mixed Projects (Commercial or residential apartments) Commercial Apartment >15% (RREP)
- Commercial
- Non-Affordable Residential
- Affordable Residential
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12%
5%
1%
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Proportionate ITC |
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Ongoing projects (option exercised for old rates)
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S.No
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Category
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Eff.GST Rate
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Condition
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| 1. |
Commercial Projects |
12% |
With ITC |
| 2. |
Residential Projects
- Non-Affordable
- Affordable
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12% 8% |
With ITC |
| 3. |
Mixed Projects (Commercial or residential apartments) Commercial Apartment <15% (RREP)
- Commercial
- Non-Affordable Residential
- Affordable Residential
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12%
12%
8%
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With ITC |
| 4. |
Mixed Projects (Commercial or residential apartments) Commercial Apartment >15% (RREP)
- Commercial
- Non-Affordable Residential
- Affordable Residential
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12%
12%
8%
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With ITC |
(The views expressed are strictly personal.)
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