After the clarifications given by way of FAQs released vide F.No. 354/32/2019 by Tax Research Unit, Department of Revenue on 7th May’19, another document vide No. 354/32/2019 TRU has been released as FAQs (Part-II) on real estate on 14th May ‘19. Many of the aspects clarified are evident from the notifications issued and also discussed in our booklet on “Practical Guide on a 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. However, an important aspect to be noted here is that it has been mentioned at the beginning of the FAQ documents (both that are issued) that there is no legal validity of what has been clarified and that the notifications issued will have legal force.
Aspects on which clarity is given:
- The landowner would be eligible for the credit of the tax charged by the developer. However, the landowner would not be eligible for credit in respect of any other goods or services.
- For the purposes of determining the threshold of Rs. 45 lakhs for an affordable residential apartment, shall not include charges that are not part of the value of the composite supply of the construction services, like stamp duty payable to the statutory authority, maintenance charges/deposits for maintenance of apartment or maintenance of common infrastructure, etc.
- In case of a project with both residential and commercial apartments [where the 80% criteria (i.e. 80% of procurements shall be from registered persons) is required to be fulfilled only w.r.t. the residential apartments], the procurements pertaining to the residential apartments shall be ascertained by proportioning on the basis of the carpet area in the project of the residential and commercial apartments.
- Rate of GST on the transfer of development rights or FSI (including additional FSI) is 18%.
- Projects in respect of which completion certificate has been received prior to 1st Apr ’19 and in respect of which the time of supply (ToS) of the service falls prior to such date, but certain demands are still pending to be received from customers on or after 1st Apr ’19, would be liable at the effective rate of 12% only. This is a scenario where the amounts as per the agreement with the customer are due prior to 1st Apr ’19 itself and thereby ToS being prior to such date would be liable at the effective rate of 12% only irrespective of when such amounts are received.
- While computing the limit of 80% of procurements from registered persons, the supplies which are neither a supply of goods nor supply of service as per Schedule III of CGST Act,2017 (For Example: salaries and wages, purchase of land, etc) shall not be considered.
- A person opting to pay GST at the rates applicable prior to 1st Apr ’19 is not required to fulfill the criteria of 80% of the procurements of input and input services being from registered suppliers.
- The declaration in the Form given in Annexure IV to notification No. 3/2019 CTR dated 29th Mar ’19 shall be filed separately for each project where the option to pay under the existing scheme is chosen.
- The rate of 12% (in terms of entry 3(va) of above referred notification) which is applicable for a contractor or a sub-contractor executing works contract in respect of affordable housing can charge so on the basis of a declaration by the promoter to the contractor that the project meets the conditions prescribed for concessional rate of GST on works contract service prescribed under the said entry.
Aspects on which clarity is given but there is a different view:
- It is necessary that the landowner and the developer exercise the same option i.e. effective rate of either 5% or 12% for a particular project. The reason for the same is stated to be for legal and operational harmony. However, from the law that is effective from 1st Apr ’19, there does not seem to be any compulsion in this regard. One possible reason that can be stated for this could be, for the landowner to be eligible for the ITC of tax charged by the developer, the tax shall be discharged by the landowner, not less than that charged by the developer. In such case, it could be said that where the developer has opted for the existing scheme (i.e. 12%) the landowner is bound to get into the same scheme to be able to avail the credit. However, we feel this is more of a choice rather than compulsion by the law.
- While computing the limit of 80% of procurements from registered persons, the inward supplies of exempted goods/services shall be included in the value of supplies from an unregistered person. This means that the procurement that is exempt under GST (say for example interest), will be considered to be procured from the unregistered person for the purpose of calculating the said threshold. This could lead to indirectly taxing the goods or services which are exempt, which is neither the intention of the legislation nor permissible.
- It is clarified that in case of a project, where completion certificate has been received prior to 1st Apr ’19 but some part of the consideration in relation to the apartment is due after such date as per the agreement with the customer, such installments would also be liable at the effective rate of 12% / 8%. It appears that such a project will not qualify as an ongoing project. However, from the definitions given in notification 3/2019 ibid, the said project would be a new project commencing on or after 1st Apr ’19 and the installment due after 1st Apr ’19 would be liable at the effective rate of 5% / 1% and requiring reversal of credit in terms of Annexure I or II to such notification. Further the clarification states that 12% needs to be paid because the time of supply for such flat has aroused before 31st of March 2019, in fact as per the provision of section 13 of the CGST Act, the time of supply will arise only on completion of the milestone as per the payment schedule say for example if 5% is payable on handing over, time of supply to the extent of this 5% will happen only on handing over and it will not automatically arise on receipt of the completion certificate.
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.