There are various aspects that are clarified in the FAQs released vide F.No. 354/32/2019 by Tax Research Unit, Department of Revenue on 7th May'19. Many of such are aspects that are evident from the notifications issued and also discussed in our booklet on “Practical Guide on new scheme of taxation for Real Estate under GST” which was last updated on 29th Apr ‘19. However, there are certain other aspects on which clarity has now been given by these FAQs, some of which are in line with the law and others which are not. Further, there also exist certain aspects on which clarity is not available even till date. We have summarised these points accordingly, below.
Aspects on which clarity is given:
- The form given in Annexure IV to notification 3/2019-CTR dated 29th Mar '19, has to be submitted manually to the Jurisdictional Commissioner (FAQ No. 4)
- All conditions mentioned in notification No. 3/2019 ibid against S. No. 3(i) to 3(id) (i.e. opting for new scheme) are mandatory i.e. payment of tax through Cash Ledger, payment of tax under RCM subject to 80% limit, non-availing of Input Tax Credit, reversal of credit, maintenance of project wise account, reporting of ITC not availed in corresponding GSTR-3B etc.
- Rate of tax on supply of TDR or FSI or long term lease of land, used for the construction of residential apartments would be liable at 18% but the amount of tax shall be limited to 1% or 5%, as applicable, of value of apartment in the new projects where new rate of 1% or 5% is applicable.
- TDR or FSI or long term lease of land, used for construction of commercial apartments shall attract GST of 18%. Hence, for such supplies the provisions as applicable prior to 1st Apr '19 would continue to apply and the notification No. 4/2019-CT(R) dated 29th Mar '19 would not be applicable as the same is w.r.t. residential apartments.
- GST on supply of FSI relating to commercial apartments where consideration is in monetary terms, the liability to pay GST would arise immediately, as notification 6/2019-CT(R) dated 29th Mar '19 does not cover such FSI.
- GST on supply of long term lease of land relating to commercial apartments (whether consideration is in monetary terms or construction service), the liability would arise immediately as notification 6/2019-CT(R) ibid does not cover such long term lease.
- Upfront amount paid as long term lease for residential apartment exempt to the extent of apartments sold prior to CC, but license fee, etc. other than in the nature of upfront fee liable to GST.
- The buyer of apartment cannot exercise option to pay tax at the new or old rates. It is the builder, who has to exercise the option to pay tax on construction of apartments at the old rate of 12% latest by 10th May, 2019.
- Where invoices are issued by the promoter for an ongoing project, say:
- @5% for the instalments due/received on or after 1st Apr '19 but later such promoter has opted for 12% by 10th May '19, a debit note can be issued for such differential taxes for the invoices issued between 1st Apr '19 to 10th May '19, in accordance with section 34 of CGST Act, 2017.
- @12% for the instalments due/received on or after 1st Apr '19 but later such promoter has not opted for 12% by 10th May '19, a credit note can be issued for such differential taxes for the invoices issued between 1st Apr '19 to 10th May '19, in accordance with section 34 of CGST Act, 2017.
- Credit notes issued for adjustment of tax paid on flats that are cancelled on or after 1st Apr '19, can be adjusted against output tax liability of 1% or 5%, or any other GST liability, provided entire amount received from buyer is refunded by the Developer before September following the end of the financial year.
- The option to pay tax at the old rates of 8% and 12% with ITC, if exercised, has to be taken for each of the ongoing projects separately in the same entity. However, a different rate can be adopted for each of the ongoing projects in the same entity by the developer.
- JDA entered prior to 1st Apr '19 and allotment done (in area share agreement) in ongoing project on or after such date, GST liability would be on the allotment date in terms of notification No. 4/2018-CT(R) dated 25th Jan '18.
- An ongoing project where OC has been received for in part(s) for the project and not for the entire project, by 31st Mar '19, it would be considered as ongoing project (if the other conditions of ongoing project are satisfied) and 1st occupation is not considered to have occurred. Hence promoter would have option to choose either 1%/5% or 8%/12% for such project.
- Irrespective of whether the construction done by the promoter is of different towers or in different phases, the registration under RERA will determine whether it is one project or different projects. If different RERA registrations obtained for each tower or phase, it will be considered as different projects for the purpose of GST as well.
- Rate of tax applicable to a contractor to a developer or promoter would be 12% or 18% for affordable and non-affordable housing, respectively.
- If commencement certificate has been issued even for part of the project on or before 31st Mar '19, it shall be treated as an ongoing project provided other requirements of the definition of ongoing project are met.
- The residential apartments allotted to the original inhabitants in case of redevelopment project or slum dwellers in case of slum rehabilitation or redevelopment project, the requirement that at least one instalment has been credited to the bank account of the promoter shall not be required to be met for such apartments as the consideration for such apartments is receipt in the form of transfer of development rights from the original inhabitants.
- Deduction of actual value of land cannot be taken and only 1/3rd deduction will have to be claimed in terms of para 2 of notification 11/2017-CTR dated 28th Jun '17.
- The activity of transfer of development rights by a land owner, whether an individual or not, to a promoter is a supply of service as it would fall within the ambit of ‘business' which is defined in a wide sense under GST.
- The Form shall be filed manually with the office of the Commissioner in whose jurisdiction the registration of the promoter is assigned, either Centre or State.
- No modification / amendment of the option is allowed in the Form, once submitted
Aspects on which clarity is given but there is a different view:
- The Developer would be liable under RCM for the transfer of development rights by the Landowner only w.r.t. JDA entered on or after 1st Apr '19. Such liability under RCM would not be applicable for JDA entered prior to 1st Apr '19. However, in our considered view, in such case where the allotment is done after 1st Apr '19, GST would be liable under RCM in the hands of the Developer since the liability to pay tax (under RCM or FCM) has to be determined as per the provisions applicable on the date of time of supply, which would be the date of the allotment or supplementary deed. On such date, RCM liability exists. Further point to be noted is that the notification No. 5/2019 – CT(R) dated 29th Mar '19, which creates liability under RCM for such supply, refers only to JDA and no specific reference to JDA entered on or after 1st Apr '19 is made. Hence RCM provisions would be applicable where the allotment is done on or after 1st Apr '19.
- In case of apartments booked prior to 1st Apr '19, on which GST has been paid and ITC availed, which are subsequently cancelled and rebooked at the new rates of 1% / 5% without ITC or sold after issuance of completion certificate (where no tax is liable), the credit taken in respect of such apartments for supply of service till 31.03.2019 shall be required to be reversed. This proposition is not coming out in the provisions of reversal under Annexure I or II to notification No. 3/2019 ibid. Hence, may not be required to be done.
Aspects not clear yet:
- No clarity yet on the supplies that are exempt or are no supplies, whether the same will be counted for ascertaining the 80% limit of purchases from registered persons in case of persons opting to pay tax at 1% or 5%.
- Credit notes issued for adjustment of tax paid on flats that are cancelled on or after 1st Apr '19, can be adjusted against output tax liability of 1% or 5%, or any other GST liability, provided entire amount received from buyer is refunded by the Developer before September following the end of the financial year. Ambiguity remains where the Developer retains a part of the consideration towards cancellation charges and thereby does not remit the entire tax amount to the customer. Whether in such case the adjustment in liability would not be permitted? The proviso to section 34(2) of the Act stipulates that reduction in output tax liability would be allowed only to the extent of incidence not passed on. Hence to the extent of amounts returned to the customer the output tax liability should be allowed to be adjusted.
There are several open ended issues which are not yet resolved. Please refer our booklet on “Practical Guide on new scheme of taxation for Real Estate under GST (including FAQs)” for such issues in the link below.
Disclaimer: This material and the information contained herein prepared, to provide updates under GST and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.