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The Goods and Services Tax, 2017 has been implemented in the year 2017. This is a path breaking decision taken by Indian Government. Through implementation of GST, we have introduced One Tax One Nation theory.

The GST has removed cascading effect of taxes and provide much needed relief to the business community.

But since its implementation in Real Estate Sector, various disputes have come to notice of government. We have debated much on definition and applicability of GST on Work Contracts related to Real Estate Sector.

We can divide Real Estate into two activities Residential and Commercial.

Works contracts and implications in real estate under GST

1. For Commercial Real Estate companies, typical output activities are;

  1. Renting/leasing of built-up commercial properties to customers. Such properties can be within a Special Economic Zone or an Information Technology Park or in normal Domestic Tariff Area;
  2. Renting of fit-outs to tenants who so require for the commercial spaces leased by them;
  3. Common Area Maintenance charges recovered by commercial real estate companies from their tenants for upkeep of common areas of the property, power back-up, water charges etc.;
  4. Parking Charges;
  5. Income from advertising /promotion/marketing for others in the commercial space including through roof top rentals and signboard/signage rentals of sports facilities (if any), pantry service, rental of business conference spaces, etc.

2. For Residential Real Estate companies, the output services are;

  1. Renting /Lease of residential properties;
  2. Common Area Maintenance Charges
  3. Parking Charges;
  4. Other ancillary activities.


The key input for both Commercial and Residential Estate Companies would be the construction contracts for bringing into existence the Commercial/Residential property for lease/sale. Such input side construction contracts would clearly qualify as " Work Contracts" under GST being in relation to immovable property namely Commercial/Residential property for lease/sale.

The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as;


" Works Contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract ."

Larsen & Toubro (2014) I SCC 708; the larger bench of Supreme Court interpreted the definition of the term " Work Contract", to hold that even in case of real estate transactions of sale of under-construction flats, the developer is constructing said flat(s) for the purchaser and not for himself and therefore such contract amount to a "Work Contract".

Note: Thus, from the above, it can be seen that the term works contract has been restricted to contract for building construction, fabrication etc. of any immovable property only.


SECTION 17 OF GST ACT, 2017 deals with Blocked Credits;

(1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, 2 and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Explanation.— For the purposes of this sub-section, the expression ‘‘value of exempt supply’’ shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.

(4) A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse: Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year: Provided further that the restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.

Section 17(5); Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18 , input tax credit shall not be available in respect of the following, namely:

Clause of Section 17(5)

Blocked Credit

When ITC is available and not blocked


(a), b(i)) & (ab)

Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) including leasing, renting or hiring thereof.

Services of general insurance, servicing, repair and maintenance of aforesaid motor vehicles

When such motor vehicles are used for

i) further supply of such vehicles or

ii) transportation of passengers or

iii) imparting training on driving of such motor vehicles.

ITC would further be admissible for leasing, renting or hiring of motor vehicles when such motor vehicles are used for above said purposes or where the recipient is engaged in the manufacture of such motor vehicles or in the supply of general insurance services in respect of such motor vehicles insured by him.

Earlier ITC was prohibited for all motor vehicles and now seating capacity criteria has been inserted in new clause.

Further specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of motor vehicles was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard. Although normally tax payers were not availing ITC on such services.

(aa) , b(i)) & (ab)

Vessels and Aircraft including leasing, renting or hiring thereof.

Services of general insurance, servicing, repair and maintenance of aforesaid vessels and aircrafts.

When such Vessels and Aircraft are used for

i) further supply of such Vessels and Aircraft or

ii) transportation of passengers or

iii) imparting training on navigating / flying such vessels / aircraft.

iv) transportation of goods.

ITC would be admissible for leasing, renting or hiring of vessels or aircraft when when such vessels or aircraft are used for above said purposes or where the recipient is engaged in the manufacture of such vessels or aircraft or in the supply of general insurance services in respect of such vessels or aircraft insured by him.

Specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of vessels and aircraft was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard. Although normally tax payers were not availing ITC on such services.


Supply of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance

ITC would be available when inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.


membership of a club, health and fitness centre;



travel benefits extended to employees on vacation such as leave or home travel concession;



Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;


The term " construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

Further the expression " plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes— (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises


Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.



Goods or services or both on which tax has been paid under section 10 i.e. Composition Scheme


It may be noted here that under composition scheme the tax cannot be charged by supplier from the recipient and accordingly question ITC availment by recipient does not arise.


Goods or services or both received by a non-resident taxable person except on goods imported by him;




Goods or services or both used for personal consumption;


ITC is admissible only in respect of supplies taken for business purposes. Thus, supplies received for personal purposes are blocked.


Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;


Such goods being not used for providing taxable supplies, the ITC thereon is blocked u/s 17(5).


Any tax paid in accordance with the provisions of sections 74 (Tax not / short paid due to fraud etc.), 129 (Detention, seizure and release of goods and conveyance in transit) and 130 (confiscation of goods or conveyance and levy of penalty).


As in such cases tax was not paid with intention to evade tax the ITC thereon has been prohibited in order to penalize such assessees.


  1. Now we have noted that owing to credit restrictions under Section 17(5)( c) & (d) of the CGST Act,2017, a company which procures "work contracts services", resulting in construction of immovable property( other than " Plant and Machinery"), can avail the ITC of such services only if that company utilises the said " Work Contract Service" , to further provide " Work Contract Service" .
  1. However, if company avails " Work Contract Service" , resulting in the construction of immovable property, and utilises the same for further providing (say) leasing services as its output service the, the company would not eligible to avail ITC of the " Work Contract Services" .
  1. Thus it is cleared from above details that only residential real estate companies who can avail( to the extent of under construction flats agreed to be sold) credit of the input GST on " Work Contract Services" , procured for construction their property -such input side GST would completely be a cost to Commercial real Estate Companies and this may need to be factored through revised rentals.

However, for residential real estate companies who have significant amounts of under-construction flats agreed to be sold, there may be scope for reduction in final prices for the following reasons;

  1. As discussed in the preceding segments, the value of land shall be deducted while calculating the total amount to be charged to GST;
  1. Since the builder would now be entitled to full credit of GST paid on input goods and services, that benefit may nullify the effect of increase in rates of steel, cement, etc., under GST.



We have to consider two scenarios applicable to Residential Real Estate Companies;

1. Joint development agreements: in this scenario land owner and developer come together for development of a land. The land owner provide necessary developments rights to the developer and in return, get benefitted through area-sharing/revenue sharing /cost-sharing arrangements;

  1. Area sharing contracts where land owners(s) receive built -up flats etc., may qualify as a supply of Work Contract Services; by the developer to the land owner in return for consideration in kind viz, right to develop the land and thus be liable to GST.
  2. Revenue -sharing contracts and cost-sharing contracts may however qualify as scenarios where the element of " rendering service" of any kind is absent; the returns in the form of built-up real estate/share of sale proceeds , it can be argued , are simply a recovery on the investments made by the companies who are partners /co-ventures in the venture and not consideration for " supply" .

Mormugao Port Trust Vs. CCE, Goa TS-432-CESTAT-2016-ST; holding that activities undertaken by a partner /co-venture for mutual benefit of the partnership/joint venture cannot be regarded as a service rendered by one person to another for consideration and therefore cannot be taxed under GST.

Note: it is necessary to look into Joint Development Contracts before entering into. Such-no GST position will be possible only if the contract reflects a relationship akin to a Joint Venture arrangement.

2. Slum rehabilitation agreements: it typically involve;

  1. Identification of property which has been encroached by the slum dwellers;
  2. Submission of rehabilitation proposal to Slum Rehabilitation Authority (SRA) for approval according to applicable law of the state;
  3. Letter of Intent form SRA as approval;
  4. Conveyance Deed between developer and SRA for the relevant parcel of land allowing developer to construct and handover free of cost to the SRA specified numbers of tenements each comprising of specified square feet carpet area for rehabilitation of slum dwellers covered by SRA Project;
  5. In lieu thereof SRA will give benefits of transfer of development right after receiving the certificates from the Architect, Structural Engineer and Site Supervisor of the work carried out by the developer and cause to issue Development Right Certificate) DRC) to the Developer which is usually Transferable in nature;
  6. The Developer makes use of this development right for its own construction activity (for construction for additional flats to be sold in the open market) or sells it in the market to a third party for a price.


  1. Under Pre-GST era, no service tax was paid on the value of rehabilitation tenements on the basis of Mega Exemption Notification 25/2012 -ST. This transaction was considered as " Barter" and not tax is levied on " Barter" ;
  1. No-VAT was charged on this type of transactions, since revenue considered it as a " Barter’;
  1. Much have changed after Bombay High Court decision in case of Sumer Corporation Vs. State of Maharashtra (2017-VIL-272-BOM) wherein the receipt of transferable development rights (TDRs) has been held to amount to " Other Valuable Consideration" , and thus taxable under Maharashtra VAT Act as a works contract;
  1. Under GST also the Transferable Development Rights (TDRs) is considered as " Other Valuable Consideration" , and hence taxable.
  1. Please note that as per Entry 3(iv)(c ) of Notification No.08/2017 -Integrated tax (Rate) ,dated 28-06-2017( as amended) , if Work Contract pertain to the " a civil structure or any other original works pertaining to the " In-situ redevelopment of existing slums using land as resource through private participation" under the Housing for All ( Urban) Mission /Pradhan Mantri Niwas Yojana."
  1. Now additional flats, constructed by developer using his TDR (beyond his rehabilitation obligations), sale of such flats while they are under-construction will qualify as " Work Contract" , and will attract GST.
  1. Notification No. 4/2018- Integrated Tax (Rate) dated 25/01/2018 provides that the point of taxation i.e. the liability to pay GST has been deferred in case of supply of TDR against consideration in the form of construction service and vise-versa ( i.e. supply of construction service against consideration in the form of TDR) to the point of time when the possession or right in the constructed property is transferred to the person supplying the Development Rights, by entering into a conveyance deed or similar instrument (e.g. allotment letters).
  2. SALE OF IMMOVABLE PROPERTY AND CONSTRUCTED FLATS (i.e. where Completion Certificate has been issued by Competent Authority);

Definition of Goods - Section 2(52) of GST Act

"Goods" means every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

The above is summarized as under:

Goods include:

  1. Every kind of movable property
  2. Actionable claims
  3. Growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

A goods does not include:

  1. Money and
  2. Securities.

Note: Goods under GST Act, it shall also satisfy the test of Movability. The term " Movability of property is defined in the section 3(36) of the General Clause Act, 1897 to mean " Property of every description, except immovable property" .

The above definition does not cover " Immovable Property" . Further per Clause 5 of Schedule III appended to the CGST Act, 2017, following are neither supply of goods nor supply of service;

  • Sale of land;
  • Sale of Building (other than under constructed flats/units).

Thus, sale of completed flats/units do not attract GST.

Conclusion: even though the government had issued many clarifications /notifications the rate of dispute between revenue and the assessee are not reducing. There are various judicial decisions by many High Courts even by Supreme Court that differ based on different circumstances. Since Real Estate sector in India is one of the biggest contributors in GDP. A large workforce has been engaged in real estate sector and this sector is booming day to day. The government have to reduce litigations, while implementing ant new law or imposing any tax. The consumer /customer/ end user is the most affected due to these types of disputes.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation and published in Official Gazette of India on 9th August,2019 and other available details at the internet sites. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assumes no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.


Published by

FCS Deepak Pratap Singh
(Manager Compliance -SBI General Insurance Co. Ltd.)
Category GST   Report

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