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GST on Real estate sector

As we know, the real estate sector is one of the most significant pillars of the Indian economy. Figuratively speaking, it contributes 6% to 8% to India’s Gross Domestic Product (GDP) and also stands second in terms of employment generation.

Under both the regimes (i.e., pre-GST regime and post-GST regime) indirect tax implication has always been the talk of the town when it comes to the real estate sector.

The introduction of GST, initially, resulted in higher payment of indirect taxes for the real estate sector. However, due to the following two crucial reasons, GST implication was changed drastically from 1^st April 2019-

Reason 1 – The real estate was suffering a huge recession; and

Reason 2 – The Government wanted to make the property more affordable to the common man to boost the achievement of the target of ‘Housing for all by 2022’.

The present article clarifies the GST implication on ‘Residential Real Estate Project’ as well as on commercial projects. It also covers GST implication post receipt of completion certificate and sale of land.

GST implication on ‘Residential Real Estate Project’-

Notification no. 03/2019- Central Tax (Rate) dated 29^th March 2019 defines the term ‘Residential Real Estate Project’ as a project in which the carpet area of the commercial apartments is not more than 15% of the total carpet area.

The taxability of ‘Residential Real Estate Project’ is broadly divided into the following two parts-

1. Affordable housing; and
2. Non-affordable housing.

The term ‘affordable housing’ is also defined under notification no. 03/2019- Central Tax (Rate) dated 29^th March 2019. A simple understanding of the term is provided in the table below-

Particulars	Conditions to be satisfied
Affordable housing for metropolitan cities like- Bengaluru; Delhi NCR (limited to Delhi; Noida and Greater Noida; Ghaziabad; Faridabad and Gurgaon); Chennai; Kolkata; Mumbai; and Hyderabad.	If the following conditions are satisfied, it will be categorized as affordable housing- Condition 1 – The carpet area of the house should be up to 60sqm; and Condition 2 – The gross amount charged should not be more than INR 45 Lakhs.
Affordable housing for cities/ towns other than metropolitan cities.	If the following conditions are satisfied, it will be categorized as affordable housing- Condition 1 – The carpet area of the house should be up to 90 sqm; and Condition 2 – The gross amount charged should not be more than INR 45 Lakhs.

Accordingly, the ‘Residential Real Estate Projects’ which are not classifiable under affordable housing will be considered as non-affordable.

After understanding the entire concept of the Residential Real Estate Project, let us look into the taxability of the same. The tax implication of the same under GST is explained hereunder-

Type of Residential Real Estate Project	GST rate effective from 1st April 2019
Affordable housing	1% without availing any Input Tax Credit
Non-affordable housing	5% without availing any Input Tax Credit

Notably, the above rates are applicable only if all the following conditions are satisfied-

1. Input Tax Credit is not available.
2. 80% of the value of input and input services used for supplying the service needs to be purchased from the registered person. Notably, the 80% value cap doesn’t include the following-
   1. Services by way of grant of the development rights;
   2. Floor Space Index i.e., FSI (it also includes additional FSI);
   3. Long term lease of land;
   4. Value of high speed diesel;
   5. Value of electricity;
   6. Value of motor spirit;
   7. Value of natural gas.
3. In case the above referred value cap of 80% is not satisfied (i.e., there is a shortfall).Then, the builder/ promoter is required to pay the tax on such shortfall value @18%. Such tax is payable under Reverse Charge Mechanism (i.e., RCM).
4. If the builder/ promoter is purchasing cement from the unregistered person. Then, the builder/ promoter is required to pay GST @28% on the value of cement purchased from the unregistered person. Here also, GST is payable under RCM. Such tax is to be paid in the month in which the cement is received from the unregistered person.

GST implication on Commercial Project -

As seen above, from 1^st April 2019, a wide amount of changes was introduced to the ‘Residential Real Estate Project’. However, there is no change in GST implication with respect to a commercial project.

Accordingly, the GST implication on the commercial project/ space is explained hereunder-

Particulars	GST rate effective from 1st April 2019
Commercial space in Residential Real Estate Project (having commercial space less than 15% of the total carpet area)	5% without availing any Input Tax Credit
Any other commercial project	12% with availing of the Input Tax Credit

GST implication post completion certificate-

In terms of Schedule II para 5(b), when both the below condition is satisfied, the same will not be treated as ‘supply of service’-

CONDITION 1 – Completion certificate is received from the competent authority; and

CONDITION 2 – Entire consideration is received after issuance of the completion certificate.

When both the above conditions are satisfied, the same is not ‘supply of service’ and accordingly, no GST is payable on the same.

GST implication on sale of land-

Schedule III covers activities/ transaction which is neither ‘supply of goods’ nor ‘supply of services’. Accordingly, para 5 of Schedule III covers the ‘Sale of land’.

Meaning thereby, ‘sale of land’ is neither ‘supply of goods’ nor ‘supply of services’ and hence no GST will be payable on the same.

Synopsis-

GST on the real estate is shortly explained hereunder-

Particulars	GST Rates
Residential real estate project covered under affordable housing	1% without availment of Input Tax Credit
Any other residential real estate project	5% without availment of Input Tax Credit
Commercial space covered within residential real estate project (i.e., commercial space is less than 15% of the total carpet area)	5% without availment of Input Tax Credit
Any other commercial project	12% with availment of Input Tax Credit
Sale of land	NA
Cases, wherein, completion certificate is issued by the competent authority and entire consideration is received after completion certificate	NA

 

A developer enters into a development agreement cum GPA at 50 : 50 ratio with the land lord for construction of residential apartments.

GST is payable @ 5% on sale of the under constructions apartments falling under builder share.

Is GST payable by the Builder on remaining under construction apartments?? If yes , at what point of supply.

whether builder can claim proportionate ITC in case answer to point No 2 is positive.

When the land lord is liable to pay GST if he is selling the apartments falling under his share when they are under construction... What about his ITC ??

Replied to sravan

GST is payable by the builder on sale of all his under-construction flats @5%. In respect of landowner share flats, the builder is liable to pay GST on construction service given to the landowner, whenever they are sold before completion certificate(by collecting from the landowner). On the date of completion certificate, the builder has to pay GST on the landowner share flats which are unsold at that point.

Landowner is also liable to pay GST on the under-construction flats sold by him before completion certificate. He can avail ITC on the tax paid by the developer in respect of his flats.

It is to intimate you that Real Estate namely Sare Saamag Reality Pvt. Ltd. Ghaziabad UP, office Sarita Vihar New Delhi
is charging @ 12% GST on flats.
In other aspects their monopoly is being maintained.
Kindly do the needful.

Replied to Devi Shanker Sharma

Dear Member,

Any aggrieved person can file a complaint at naa.gov.in

please give option to download the article in PDF format

GST implication post completion certificate-
In terms of Schedule II para 5(b), when both the below condition is satisfied, the same will not be treated as ‘supply of service’-

CONDITION 1 – Completion certificate is received from the competent authority; and

CONDITION 2 – Entire consideration is received after issuance of the completion certificate.

What if second condition is party satisfied i.e. Part consideration is received before completion certificate and part after completion certificate. Whether 2nd part consideration is not a supply or continue to remain supply and taxed at the same rate as first installment.??

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