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GST - Real Estate - FAQs are welcome but more needs to be done!

TIOL - COB( WEB) - 659
MAY 16, 2019

By Shailendra Kumar, Founder Editor

TO ease the pain of the real estate taxpayers as well as their consultants, the CBIC has issued two-part detailed FAQ. The Part-II was released on Tuesday night. In total, as many as 68 queries of simple to complex variety, have been answered with reasonable details. I am sure such an effort of the GST Monitoring Committee would go a long way in giving a feeling of comfort to the taxpayers from this sector.

One of the queries which has a clear tilt in favour of flat-buyers is : "How to compute adjustment of tax in a Credit Note to be issued u/s 34 by Real Estate Developer in case unit was booked prior to 1st April, 2019 on which GST was paid on part consideration received at the time of booking, but cancelled after 1st April, 2019."

And its answer is - A developer may resort to the provisions of Section 34 and issue Credit Note to the buyer in case of cancellation of booking provided that the amount received in excess if any, is refunded to the Buyer by the Developer before September following the end of the financial year. Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note. Further, in case apartments booked prior to 1.04.2019 on which GST has been paid till 31.03.2019 at the old rates of 8%/ 12% with ITC, are cancelled and rebooked at the new rates of 1% / 5% without ITC or sold after issuance of completion certificate, the credit taken in respect of such apartments for supply of service till 31.03.2019 on which tax was paid @ 8%/ 12% with ITC shall be required to be reversed.

Although many relevant queries have been answered but it has also been made clear like in the past that these answers will not have any force of law. In case of litigation, the gazette notifications shall have precedence. Though all such official efforts deserve kudos from the taxpayers but what more needs to be done at this stage is to issue certain Departmental Instructions to safeguard the interest of exchequer. One such Instruction can be relating to computation of 80% of supplies from registered suppliers and the remaining 20% from unregistered and the tax is to be paid under the RCM. In this scenario, if a developer claims the entire 20% supplies from unregistered suppliers for Cement and pays 18% tax under RCM, it would lead to revenue loss as Cement attracts 28% tax rate. So, the solution lies in ensuring that while computing 80% supplies from registered suppliers, the value of Cement should be taken into consideration first before other inputs and input services are brought into computation.

Another important area of litigation where some clarification is required or an Instruction to field officers will suffice is that some developers may prefer importing certain goods or services from a foreign supplier. Since foreign suppliers are not registered under GST, it may create problem. So, it is important that all imports should be counted towards the 80% condition so that it provides level-playing ground to imported goods or services as well as domestically-procured goods.

Another point which may be considered by the GST Monitoring Committee is that should there be a separate compliance mechanism under GST when there is already one detailed procedure under RERA? RERA warrants a developer to file a project-wise Return giving details of funds received from flat-buyers and expenditure incurred along with the purchase bills. Once such details are filed, a registered builder is allowed to withdraw certain funds from the Escrow account. Since there is a fairly detailed return procedure under RERA, the GST authorities may rely on the same for their own computation of 80% condition of receiving supplies from registered suppliers.

Besides these potential areas where clarifications are required, some corrections and amendments in certain notifications are also required. One such correction has been done in Notification No 3/2019-CT(R) where 18% rate under RCM has been substituted by 9% CGST and 9% SGST. A similar correction is required in the Annex 1 Illustration 1 where at Sr No 9, the total carpet area of the commercial apartments is taken as 750 sq m over a total area of 6000 sq m which works out to be only 12.5% where the law permits upto 15% area as commercial in nature. Though the Notification uses the expression not more than 15% and such an illustration is legally correct but it has created confusion in the minds of developers and all confusions must be avoided in the beginning for better compliance.

In a nutshell, a good amount of hard work has gone into designing this new tax regime for the Real Estate Sector and a little more hand-holding would go a long way in giving stability to this financially-bruised sector. I hope that too much tinkering in the coming months is avoided so that there is an element of certainty for the flat-buyers as well as the developers who are bound to have a new shade of experience with tangible parameters of compliance!


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