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GST on Real Estate

Kusum Gandhi 
Updated on 14 March 2020

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Real Estate is one of the globally recognized sectors. Indian Government agenda on Housing for All by 2022 and Real Estate sector got a boost with Budget 2019.

In Budget 2019, Government has increased the benefit of tax deduction against interest on home loans for affordable housing, with a value of up to Rs 45 lakhs. Now Interest deduction will be up to Rs 3.5 lakhs for affordable housing, as against Rs 2 lakhs earlier.

Government has increased Carpet area from 30 square meters to 60 square meters in metropolitan regions and from 60 square meters to 90 square meters in non-metropolitan regions.

Government has announced that RBI will now be the 'In-charge' of regulation of Housing Finance Companies (HFC). This sector was previously managed by 'National Housing Bank (NHB)', but, for the efficient regulation of the housing sector, quality assessment and to infuse fear of scrutiny amidst banks if found indulging in improper practices, RBI shall now take the charge.

GST on Real Estate

Terms in Real Estate Sector -

Terms usually used by Developers in Builder-Buyer Agreement can be tricky for those who don't understand their actual meaning.

Some of the important terms in Real Estate Industry are as follow :-

CARPET AREA

Basically, It is net usable floor area of an apartment, excluding the area covered by external walls/areas under services shafts, exclusive balcony/verandah area and open terrace area, but includes the area covered by internal partition walls of Apartment.

BUILT-UP AREA

 
  • Built-up area is the area that comes after adding carpet area and wall area.
  • Wall area is the thickness of the inner walls of a unit.
  • Built-up area also consists of other areas mandated by Authorities, i.e. dry balcony etc.

SUPER BUILT-UP AREA

Super Built-up area is the area calculated by adding the built-up area and common area that includes corridor, lift lobby, lift, etc.

In some cases, builders include amenities i.e. pool, garden and clubhouse in common area.

A Developer/Builder charges you on the basis of super built-up area, it is also known as 'Saleable Area'.

GST on Real Estate Sector

For GST purposes, Real Estate transactions can be segregate as following -

Affordable Residential Apartment segment

An apartment shall be affordable residential apartment if such apartments having carpet area not exceeding '60 square meter' in Metropolitan Cities and not exceeding '90 square meters' other than Metropolitan Cities and for which gross amount charged is not more than Rs.45 Lakh rupees.

Input Tax Credit-

From 1st April 2019, GST rate on Affordable Apartment is 1% without ITC (previously it was 8% and ITC was also available) for Real Estate Developer.

Conditions -

Developer should procure 80% of his inputs and Input services from GST registered dealers only.

In each project, Promoter has to procure supplies at least to an extent of 80% of value of input and input services from a registered supplier in any given F.Y. or up to date of issuance of completion certificate or its first occupation.

Wherever in a F.Y. or at the time of completion certificate/its first occupation (whichever is earlier), such 80% threshold is not met, tax has to be paid by builder on shortfall @18%

  • Tax shall be paid by debiting the cash ledger i.e.applicable tax of 1% shall be paid through cash only.
  • Notwithstanding the above, in cases where cement is purchased from unregistered supplier, the builder shall be liable to pay tax at applicable rates, i.e.28% at present. The same has to be paid month-wise.

Residential other than Affordable Housing segment

Input Tax Credit for Residential segment-

From 1st April 2019, GST rate for these projects is 5% with a condition that Input tax credit is not available (previously it was 12% with ITC available) for Real Estate Developer.

Conditions

Developer should procure 80% of his inputs and Input services from GST registered dealers otherwise he has to pay GST@ 18% (CGST 9% + SGST 9%) on Reverse Charge Basis(RCM) on all such inward supplies (to the extent short of 80% of inward supplies from registered supplier) except cement on which tax has to be paid (by Promoter on reverse charge basis) at the applicable rate, which at present is 28% (CGST 14% + SGST 14%).

For calculating this threshold, the value of services by way of grant of development rights, long term lease of land, floor space index, or value of electricity, high speed diesel, motor spirit and natural gas used in construction of residential apartments in a project shall be excluded.

Commercial Apartments i.e. Shops, Offices,

Commercial apartments constructed along with other Residential Apartments where carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

Input Tax Credit for Commercial Apartment

GST rate is 5% with condition of non-availability of Input tax credit. Commercial apartments constructed along with other Residential Apartments where carpet area of commercial apartments is more than 15% of total carpet area of all apartments.

Input Tax Credit

GST rate is 12%. Input tax credit can be claimed while paying GST.
Purely Commercial projects - GST rate is 12% with Input tax credit.

Other Commercial Real Estate -

All other commercial real estate was charged GST @ 12% with Input tax credit. Other than projects that come under 1% or 5% rate, for all others input tax credit is available on Inputs, Input services and capital goods if used for the purposes of business. But before claiming input tax credit, one should satisfy the conditions mentioned in section 16(2) & 16(4) and beware of blocked credits under section 17(5).

Completed Real Estate projects -

As per Schedule III of GST law, No GST is leviable on Sale of completed projects. It means if a developer sells a flat/house after completion certificate is obtained from prescribed authority, then No GST is charged. Generally, Developers lease the unsold flats. Hence GST is payable only on rental/lease income.

Development of plots

In Plot development, following are done like leveling the land, construction of boundary wall, construction of roads etc.

IMPORTANT NOTIFICATIONS

  

Sl.
No.

Notification No

Gist of the
Notification

Effective
from

1

Notification No. 3/2019-CTR dt 29.03.2019

Changes in GST rates

01.04.2019

2

Notification No. 4/2019-CTR dt 29.03.2019

Exemption to Transfer of Development Rights (TDR), Floor Space Index(FSI) and Upfront amount

01.04.2019

3

Notification No. 5/2019-CTR dt 29.03.2019

RCM for Transfer of Development Rights (TDR), Floor Space Index(FSI) and Upfront amount

01.04.2019

4

Notification No 6/2019-CTR dt 29.03.2019

Time of Supply for Joint Development Agreements (JDA)

01.04.2019

5

Notification No. 7/2019-CTR dt 29.03.2019

RCM for 80% criteria

01.04.2019

6

Notification No. 8/2019-CTR dt 29.03.2019

Rate for RCM

01.04.2019

7

RDO 4/2019-CT dt.29.03.2019

Credit attributable to be determined based on Carpet Area

01.04.2019

 

Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. No part of this article should be distributed or copied without express written permission of the author.


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