The hustle and bustle of GST in real estate industry

CA Purva Dhoot  on 11 April 2019


After issue of 23 notifications / Orders on 29th March 2019 by CBIC . It seems that Real estate industry has been given up for a toss. The notifications were in relation to the new tax rates applicable to Real Estate Services. This shall be made applicable from 1st April 2019.The changes are impacting every real estate project whether it is ongoing or new.

Let s go through some questions arising out from these notifications but before proceeding let me introduce you to few new terms like RREP , REP etc.

1. What is RREP and REP

  • Both these terms are used for the projects having Residential as well as commercial units.
  • RREP stands for Residential real estate project. These are the projects which have commercial unit s upto 15% area of the total area of the project. These commercial units would be treated as the residential unit for tax purpose.
  • REP stands for Real Estate Project wherein the commercial units area is more than 15% of the total area of the project.

2. What are Affordable Residential Apartment

These are the Residential Apartments meeting either of criteria -

  1. CRITERIA 1
    1. Project having carpet area not exceeding 60 sqm in metropolitan cities or 90 sqm in cities or towns other than metropolitan cities AND
    2. Gross amount charged is not more than forty five lakhs rupees.
  2. CRITERIA 2
    • A unit which was qualifying as affordable housing unit under the earlier scheme (effective upto 31st March 2019).This is only for an ongoing project.

3. What are Ongoing Projects

The projects meeting all the conditions listed below are ongoing projects-

  1. Commencement certificate for the project has been issued.
  2. Construction for the project has started and the same is certified by Architect or chartered engineer or licensed surveyor
  3. Completion Certificate/First Occupation is not being issued.
  4. Apartments being constructed under the project have been booked partly or wholly.

4. What are the New Tax Rates

*These are effective Rates are after deducting 1/3rd deemed land cost

These rates would be applicable to all new projects (mandatory) and to those projects where builder has opted for option to pay tax at new rate with no benefit of ITC.

5. What about ongoing projects

Builders would be given to choose among-

i. Option1- Choose the old rate of 12% (8% in case of affordable housing) and charge this GST Rate in the invoices. Also Input tax credit is available and can be passed onto the buyer.

ii. Option2- Opt for new Rate of 5% (1% in case of affordable housing as defined by GST law). Without benefit of input tax credit(ITC). Also reverse the accumulated ITC on the closing stock of under-construction properties in a proportion as provided under law.

This Option would be One time Option to be exercised on or before 10th May 2019.

6. Are there any conditions to be fulfilled for to charge new tax rate

  1. No Input Tax Credit can been claimed.
  2. 80% procurement of input/input services(other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) should be from the registered dealer.
    1. If one fails to do so then, on the shortfall amount tax needs to be paid by the builder under RCM.
    2. Purchases which are already covered under mandatory RCM will be deemed to be purchased from registered persons.
    3. Tax needs to be paid under RCM on cement and capital goods purchased from URD (i.e. Irrespective on the quantum)

7. At what rate tax under RCM needs to be paid

Hope this article helps you !! Keep Reading
Part II - Taxation of TDR/JDA/FSI will be updated soon

This article is for guidance only, not intended to be substituted for detailed research or the exercise of professional judgment.


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