ACCOUNTING & TAXATION

Detailed Analysis of Implications of GST on Real Estate Sector

Article explains Implications of GST on Real Estate Sector. It explains GST when Builder Purchases a Land and Constructs flats for the purpose of Sale, Joint Development Agreement, Supply of Constructed Flats by Promoter to Land Owner, Supply of constructed Flat by Promoter to Outsiders, Amendments in GST in Real Estate Sector (w.e.f. 01-04-2019), Reverse Charge Mechanism on Real Estate sector (w.e.f. 01-04-2019, Example On Joint Development Agreement, Supply of land by land Owner to Promoter, Joint Development Agreement.

Real Estate Sector

 

Type of construction Project & it’s Taxability

  1. Promoter purchase a land & construct flat for the purpose of sale
  2. Work contract
  3. Labour contract
  4. Joint Development Agreement

Builder Purchases a Land and Constructs flats for the purpose of Sale:

  1. Sale After Completion of Construction: –

No GST Liability, as the aforesaid service is covered under Schedule-III Negative List of Services

  1. Sale Before Completion of Construction: –

GST Liability Exists: –

  1. Taxable @1%: –

Applicable to Affordable Residential Houses

No Input Tax Credit is available in this case.

  1. Taxable @5%: –

Applicable to Non-Affordable Residential Houses and Commercial House but which is a part of Residential Real Estate Project (i.e. where Commercial Carpet area <= 15% of Total Carpet Area)

No Input Tax Credit is available in this case.

In both the above cases (1) & (2) Rule 42 of CGST Rules (i.e. Methodology of Apportionment of credit on Inputs and Input Services and reversal of Ineligible credit) has to be applied.

  1. Taxable @12%: –

Applicable to Commercial Complex.

Input Tax Credit is available in these cases.

Note:- The above said Tax Rates 1%/5%/12% are excluding land value which is 1/3rd of the Total Value as said in Notification No.11/2017.

Works Contractor: –

  • Means a person who provides construction services without purchase of Land.
  • In these cases, Material and Labour cost is incurred by the contractor himself and he adds a reasonable profit to the cost incurred by him which will be the value of taxable supply.

GST Liability Exists: –

  1. Taxable @12%: –

Applicable to Affordable Residential Houses

  1. Taxable @18%: –

Applicable to Non-Affordable Residential Houses

In both the above cases (a) & (b) Input Tax credit is available.

Labour Contractor: –

  • Means a contract which involves a pure supply of Man power.

Taxability: –

  1. For Single residential Unit: –

This service is purely Exempt [Notification No.12/2017].

  1. In any other Case: –

Is liable to tax @ 18%

Common Notes: –

  • Meaning of Affordable Residential House: –

Affordable Residential House

 

Metropolitan cities                                                                                       Non-Metropolitan Cities

(Bangalore, Chennai, Delhi, Nodia, Ghaziabad

Hyderabad, Kolkata, Mumbai, Gurgaon)

 

[email protected]%if                                                                                                                           GST @1% if

Carpet Area <=60sq.mts&                                                                                            Carpet Area <=90 sq.mts&

Cost of flat<=45 lack                                                                                                       Cost of Flat<=45 lack

Joint Development Agreement:-

Joint Development Agreement is a case where the Promoter enters into agreement with the Land Owner, where the Land Owner supplies his land to the Promoter while in return the Land owner gets some Constructed Flats on his land along with cash consideration (if any).

In these cases generally 3 supplies are involved:-

  1. Supply of land by land Owner to Promoter.
  2. Supply of Constructed Flats by Promoter to Land Owner.
  3. Supply of constructed Flat by Promoter to Outsiders.

Supply of land by land Owner to Promoter: –

  • Transfer of Development right shall be regarded as Supply (i.e Assignment of Right to Use of Land by Land Owner to Promoter), but this supply is Exempt supply (Entry No. 41 A/B; Notification No.04/2019)-Notification given below.

Supply of Constructed Flats by Promoter to Land Owner: –

  • This is a Supply of service by Promoter to Land Owner.
  • Value of Supply of Service = Stamp Duty Value (SDV) of flats constructed by Promoter to Landowner.
  • GST Liability on Flats given by Promoter to Land Owner has to be paid irrespective of sale of Flats by land Owner to his Customers.

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