Implications of Input Tax Credit for Real Estate Sector

AT THIS TIME, We all are facing the difficulties whether you are a Businessman or Salaried Person or Professional, due to'Covid-19 Pandemic' situation,  Businessman/Professional are of supporting on one hand all Government moves of 'Lock-down/Social Distancing' in order to support to prevent spreading of Corona, On other hand they are facing Financial difficulties in terms of Salary Payment, Fixed Overhead expenditure, Payment to creditors, Loan Re-Payment and Interest, affecting normal cash flow cycle, which may also lead to triggering to review Going Concern objective on management Part.

I hope that situation will settle down as Normal it was in very near, to normalize all Industry but also fact is that it takes time and we have to STAND TO fight.

Now moving back to our Topic of INPUT TAX CREDIT for Real E-State Sector, which is one of the most important aspect after introduction of Goods and Services Tax Act, to calculate 'Eligible Input Tax Credit'.

To Light up some of Definitions/Provisions from Act, for simple understanding

1. Input Tax Include

• Tax Paid on Supply of Goods or Service received.
• Tax Paid as per Reverse Charge Provision.

2. Adhering to Provision of Section 17(5) of which deals with Specific instances where Input Tax Credit shall not be available.(Block Credit)

3. Reversal of Input Tax Credit as per Rule 42(Input and Input Service) and Rule 43 (Capital Goods).

4. Reversal of Input Tax Credit - Non-Payment of Consideration with In 180 days from the date of Invoice.

5. Exempt Supply

• Supply attracting NIL Rate, Wholly Exempt from CGST/IGST/SGST,
• Non-Taxable Supply
• Include Reverse Charge Supply, Transaction in Security
• Sale of Land and Building (Consideration received POST B.U)

Under Real E-State Sector Calculation of Credit is bit different, let check

1. Company A is running 4 Project simultaneously for construction of Residential as well as Commercial building. In such case company is receiving some of Common service (Audit Service) then how company will distribute its credit.

Ans. For On-Going Projects - Before 01.04.2019

Credit shall have to be apportioned based on the Carpet ratio rather base on base on Equally. Like Out of 4 Project 3 Project which are at the stage of completion compare other. Hence More time of Auditor consume on 3 projects.

Credit Allowable Against - Residential and Commercial Service

Project After 01.04.2019

Same as Above but Credit to the portion of Residential is not allowable and considered as In-Eligible Credit shall have declared in GSTR 3B as per Circular.

2. Will company be able to claim credit of Outdoor Catering service received at the time of Bhumi Pujan of New Project?

Ans. No, it is blocked by the section 17(5) of ACT and disclosure in GSTR 3B requires, Non-Disclosure attracts penal provision for Non-adhering provision of Law.

3. Developer/Promotor has purchased TDR/FSI after 1.04.2019 in such case what is implication of ITC and Reverse Charge Provision.

Ans. Promotor of the Project shall liable to pay Tax under RCM and eligible for ITC against Supply.
For Commercial Project - Pay GST at rate of 18%
For Residential Project - GST At the rate of 18% on un-booked apartment  On the date of OC.
(But Amount shall be limited 1% or 5% of Value of Apartment depending upon Principle Rate)

4. Company A has constructed 50 Flats but at the time of receipt if OC from department company could have been able to sale only 25 Flat. Check Implication.

Ans. As per Definition of Exempt supply which shall include sale of Land or Building as a part. So Company has to reversed Credit to the extent of 25 flats which remain unsold till OC.

5. At the end of the year 31/03/2020, company A has evaluated based on Internal Auditing of Separate record of project that ratio to supply of Input/Input service is 65% from Registered Person during the year. Check Implication.

Ans. Company shall have to Pay Tax at the rate of 18% on Input/Input service short of 80%. And if Input is Cement then at the rate of 28%.

6. At 31/03/2020, from the certificate of Architect it is seen that company has completed 60% Project. But when management inquired with accountant regarding collection of money from buyers, it is noted that as per RERA company has sent demand letter but could have collected only 50% till 31.03.2020. Check Implication.

Ans. As per RERA Guide line Company have to enter in to agreement if it has Received amount in excess of 10% of Value of Flat. Accordingly here it is Seen company had already collected 50% means Sales Agreement for those are executed. So, issue of Demand Letter is kind of Invoice and hence company has to pay tax on remaining 10% even though it is not collected.(Also Check Guidance Note for Revenue Recognition issued by ICAI applicable to all company to whom IND AS is not Applicable)

Below one is for all reader answer it

1. Company has 1 Project of 100Cr. comprises of Residential and Commercial. Company follows GST rate for Residential 5% with No ITC and for Commercial 12% With ITC. (Proportion 25% Commercial and 75% Residential)

How company can take credit of ITC on INPUT/INPUT SERVICE/CAPITAL GOOD

Query: As Initially company is receiving consideration towards booking of Commercial area in huge amounts, so in such company should company take credit at 25% or 100% tax paid Or

If it takes 25% then it will lead to later on accumulation credit where there is no consideration?

2. Can Credit of 1 Project be utilized against Payable of Other Project?

Refer Advance Rulings