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Arjuna (Fictional Character): Krishna, recently Government issued notification on Real Estate Sector as on 29th March  2019, Please tell something about it.

Krishna (Fictional Character): Arjuna, these notifications were focused on Real Estate Sector. The notifications provide lower effective GST Rates for customers. Let’s see what’s in it.

Arjuna: Krishna, what are the new tax rates?

Krishna:  Arjuna, the new tax rates are:

a. GST @1.5% (Effective rate 1% after deducting Land Cost) would apply to:

(i) All Affordable Residential Apartments (houses having carpet area upto 60 sqm in metros/90 sqm in non-metros and value upto Rs. 45 lakhs are Affordable houses), and

(ii) Also to the ongoing projects (Residential Real Estate Projects) of affordable house (where effective rate of 8% after deducting land cost was charged).

b. GST @7.5% (Effective rate 5% after deducting Land Cost) would apply to:

(i) All houses other than houses under Affordable Residential Projects

(ii) The houses booked prior to 01.04.2019, new tax would be charged on instalments payable on or after 01.04.2019, and

(iii) Commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

Arjuna: Krishna, are there any conditions to be complied, if one wants to charge new tax rates?

Krishna: Arjuna, he may do so subject to the following conditions:-

(a) Input tax credit cannot be claimed and

(b) 80% of inputs and input services [other than capital goods, TDR/ JDA, FSI, long-term lease (premiums)] should be purchased from registered persons.

If one fails to do so, then builder needs to pay tax under reverse charge basis as - 18% on inputs and input services, 28% on cement purchased from unregistered person and on capital goods at applicable rates.

Arjuna: Krishna, what about the ongoing projects (Residential Real Estate Projects) not completed upto 31.03.2019?

Krishna:  Arjuna, the builders have two options, to be opted within time prescribed (by 10th May 2019) or else the new tax rates shall apply (by default):

  • Enter into new tax rate scheme or
  • Continue to pay tax at old rates (i.e. 8% or 12%as applicable with ITC) for projects where construction and actual booking have both started before 01.04.2019 but project is not completed by 31.03.2019. 

 Arjuna: Krishna, what about TDR (Transfer Development Right)/ FSI (Floor Space Index) and Long term lease (premiums) for projects commencing after 01.04.2019?

Krishna: Arjuna, when the landlord provides builders with TDR/ FSI and Long term lease (premiums) it is covered under exemption, but the builder needs to sale such flats before issuance of completion certificate and pay tax on the same.

If flats are sold after issuance of completion certificate, No exemption would be given and the builder needs to pay tax on reverse charge basis @ 1% /5% of the value as applicable.

Such tax needs to be paid on the date of issuance of completion certificate, also for JDA taxability the date has been shifted to date of issuance of completion certificate.

Arjuna: Krishna, what one should learn from this?

Krishna: Arjuna, these notifications have brought relief or one can say Suviddha to the Customers, also at the same time they have increased the Duvidha for the Builders and Developers.

As the builders are in confusion whether to opt for 5% tax rate or continue to tax 12%, on the other hand 5% would be beneficial to Customers.

But as Change is the law of nature, one should always keep adapting and learning from the same even if there are some difficulties at the beginning. 


Published by

CA Umesh Sharma
Category GST   Report

2 Likes   10 Shares   15132 Views


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