1st July 2017- was the date of India’s biggest tax reform. Till date the disorientation regarding this rule has been observed in the current market. Initially, it was stated that the real estate sector wouldn’t be there under GST ambit. Hence, by far it’s clear that on-hand residential constructions will attract 12% taxation and under-constructions will be under 18% tax slab. Still, there are brimming bewilderment regarding input tax credit, taxable supplies, earlier Service tax issues and many more. Here we will have a close look at the laws and provisions under GST and inspect its actual eventuality on real estate market.
Credit of duties and taxes paid on the inputs lying in stock as on the introduction day of GST, under-construction residential/commercial properties on the very day of implementation of the unified tax regime-
As per Section 140(3) of the CGST Act, 2017, credit of eligible duties is granted to the suppliers of the construction services (builders/developers who were availing abatement in terms of Notification. No. 26/2012-ST dated 20thJune, 2012) referring to the inputs displaying as on 1.7.2017 which stand for-
a. Such inputs are meant to be used for making taxable supplies;
b. Only registered person is entitled for input tax credit on such inputs;
c. The mentioned registered person is in possession of invoice or other approved documents confirming payment of duty under CENVAT credit rules, 2004 referring such inputs;
d. Such invoices or other approved documents were issued previous to 12 months directly prior to the appointed selected day i.e.-1.07.2017.
Those who have already paid the construction service tax as per previous law– If already the service tax is paid, then there is no further GST paying in terms of Section 142 (11) (b) of the CGST Act, 2017 under the provisions of chapter-V of the Finance Act, 1994.
GST can’t be collected as additional charges by the builders– One thing needs to be remembered that builder/developer can charge GST in lieu of additional amenities, customerized facilities or interior/exterior modification suggested by the buyers. If such additional facilities provided before the first occupation or before the receipt of the OC, then this additional charge will be included to the transactional value or total consideration for the supply of the construction service and GST will be paid on such transaction is 18% on 2/3rd of the total consideration and 1/3rd being the redemption permissible.
In case buyer demands any external/internal alteration such as- wood work, sanitary fittings, power back up etc. undertaken after first occupation or receipt of the OC, then it will not be treated as part of the construction service, rather will be treated as independent works contract service, which is not a part of initial construction service. Such charges will be taxable under 18% GST slab without any abatement value. Other charges such as- parking lot, preferable location, firefighting installation, Gen-set facility also are supplied in addition to the construction service. Consequently, GST at the rate of 18% on 2/3rd of the Value for such naturally bundled services is to be paid on the said charges also.
Construction service eligible for “Composition Scheme” or not– Provisions of composition levy are considered under Section 10 of CGST act, 2017 are not relevant to the supply of services. (Except restaurant services)
GST on projects which have received neither OC nor receipt of first occupation– The Sec. 142(10) and 142(11) of the CGST Act, 2017 deal with the taxability of on-going projects. Here the rules have been discussed in details-
1. When the total consideration was received before 30.06.2017 from the customers for an under construction property which is neither occupied nor has received the OC Service tax payable on the consideration received at 15% on 1/4th of the consideration and there would be no GST on the same says ( Sec. 142(11)(b)- refers).
2. In case a part of consideration was received prior to 30.06.2017 for any under construction property which is neither occupied nor has received OC service tax is to be paid on the consideration prior to 1.07.2017 and there would be no GST to the amount against which the ST is payable. For the resting consideration paid after 1.07.2017, GST is to be paid as the date of payment of the balance amount or the date on which the invoice was issued by the developer, whichever in advance.
3. For on-going construction builder/developer who have raised the invoice within 30 days from the same earlier than 30.06.2017 but the payment received from the customers after 1.07.2017, ST is payable on the consideration so received at 15%, 1/4th of the consideration and there would be no GST for the duration. On the balance amount payable w.r.t the following payment act falling on or later than 1.07.2017, GST is to be paid accordingly (ii) rule.
4. For the consideration received after 1.07.2017 from the consumers in respect of the under-construction properties GST will be charged at 18% rate on 2/3rd of the consideration.
GST on the owner’s share of the apartment constructed by builder/developer and given to the land owner as per the rule and the about the calculation of such payment– On the share of the land owners builders/developers have to bear the GST, despite the land received for the development, apart from the GST on the builder’s/developer’s share of the construction.
Under this transaction builder receives consideration for the construction service given by him, from two categories of service receivers:
1. From landowner: As per the land development rights. 2. From the other buyers- Normally in cash transactions, thereby paying GST not only on his portion of the building but also the part of the landowner.
If the builder is liable to pay this entire amount of both his and the land owner’s share then GST is payable when the possession or the right of property is transferred to the land owner by entering into a ‘conveyance deed’ or related instrument. The value of the flats/portion of the building supplied to the land owner is determined in the provisions of Section 15 of the CGST Act, 2017 read with Rules governing Valuation as envisaged under Rules 27 to 35 of the CGST Rules, 2017.
According to the rule the supply of such goods or services is for a consideration not entirely in money, the value of the supply will be-
i) The open market value.
ii) In case that open market value is not available under the clause (a), be the aggregate of consideration in money and any such additional amount in money corresponding to the consideration not in money, if such amount is known at the time of supply.
iii) If the value of supply is not resolved under clause (a)/ (b) then the value of supply of goods or services or both will be conforming kind and quality.
If something happens like the above mentioned then the value of supply of the flats will be calculated as the similar set of projects charged from the buyers. For some reason if there is any correction in the price range of such apartments during the period of sale, then the other flats will be sold nearer to the date on which the land is given for the construction purpose.
Lay out charges/Plotting charges/ Development charges/ Conversion charges collected by the competent local civic bodies whether entire reverse GST charge-
As per the entry at Sl. No. 4 of notification no.12/2017-CT(R) the services which the central government, state governments, UTs or even local authority offer in the terms of any activity related to any purpose authorized to a municipality under Article 243 W of the Constitution, are not liable. “Regulation of land-use and construction of buildings” is one of such functions entrusted by the municipality at Sl.No. (b) of 12th schedule under Art. 243W of the Constitution. In view of the subject Lay out charges/ Plotting/Development and Land conversation charges are collected under State legislation are exempted from GST. 243W, the said charges for the concerned services are let off under sl.no.4 of Notification No. 12/2017-CT (R) dtd: 28.06.2017. Thus, such charges are collected by municipal authorities/ town planning/ Revenue authorities including VUDA/ HMDA won’t attract any GST. Thus, such charges are collected for the services in relation to the functions under Art. 243W of the Indian Constitution.
Disclaimer– The above mentioned information doesn’t include any legal advice. This is just a simplified concept in order to provide lucid GST solution to the real estate stake holders. For detailed legal information regarding central/state GST visit- www.cbec.gov.in.
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Month: November 2017
Inclusion Of Real Estate in GST Will Take More Time
Explaining it as a complex process GST Council member and Bihar Deputy Chief minister Sushil Modi said the inclusion of real estate in Goods and Services Tax (GST) would take “much longer time” than anticipated. The GST Council is likely to have another meeting subject to real estate inclusion in GST ambit.
Answering to a query about the tentative timeline of real estate inclusion under GST purview Susil Modi said, “It is up to GST Council to decide. But I think it will take much longer time and it is not that easy. Let other things stabilise in the GST, then petroleum products and real estate.”
Modi, who is also the Finance Minister of Bihar, said the inclusion of real estate in GST ambit will be discussed in the next meeting of the GST Council. State lived taxes such as- stamp duty, registration charges and property tax which is a municipal levy are kept out of GST range.
Every state finance minister is concerned to secure state revenue and the centre assured protection up to 14 per cent of the revenue, stated the minister. GST stabilized rates on 178 products from the top tax slab 28% after the meeting of Guwahati of GST Council.
The minister said, “In the earlier regime, the small businesses with below Rs 1.5 crore (annual turnover) were exempted from excise duty. Most of the small businesses were below less than Rs 1.5 crore cap. Now, all of them came to net of GST.”
In contradiction with the statement that the decision of rate cut on number of items from higher bracket of GST and racking them those up in the lower slab was taken in view of Gujrat assembly elections, Modi said, “88 per cent of small business in Bihar fall below Rs 1.5 crore (annual turnover). It is not the case for Gujarat.”
The market is finding it tough to comply with the unified tax regime. On which the minister thinks that it will some more time for complete adaptation of this revised indirect tax format. “Earlier in the VAT (Value Added Tax) system, 40 per cent was online based and the rest was done manually. The GST is end-to-end automation,”-said Modi.
The minister assured that the existing system would be simplified in the coming two-three months in terms of compliance as the compliance system will be less complex and more business-friendly. As of now for than 80 per cent issues have been resolved and some are yet to be worked on regarding the existing tax rates, confirmed that minister.
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Made Easy GST Laws Relative to Residential Construction and Input Credits
Is there one thing that is taking you back from property investment? Are you taken back by additional GST burden on your chosen apartment? Here are some confluent factors that one should know before putting money on residential properties these days.
Sale of an apartment is a supply of service or a sale of immovable property under GST regime– With a set budget, just when you were ready for buying a property, GST implementation dropped adding to your budget. If you think the same, please check some important facts about the central government introduced unified tax reform. According to the clause 5(b) of the Schedule II of CGST Act, 2017, construction of a house/apartment/flat intended for sale is a supply of service.
Anyhow, the clause 5 of Schedule-III of CGST Act, 2017 says that if the entire absorption for the apartment/house is obtained after the receipt of completion/Occupancy certificate (OC) from the competent authority or followed by its first occupation, whichever earlier, then such action would be neither considered as supply of goods nor a supply of service. However, a transaction related to sale of such immovable property after initial occupation or after receiving receipt of OC won’t draw GST.
Taxation on Land property- You need not arrange extra money for land purchase as the sale of “Land” is neither ‘Goods’ nor ‘Service’, thereby is exempted from GST, as provided under Clause 5 of schedule III of the CGST Act, 2017.
GST rate on supply of services related to construction of residential apartments– According to Sl. No. 3(i) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 construction of residential complex is under GST @18% slab [CGST @ 9% and SGST @ 9%] which includes- construction of complex, civil structure or a part thereof, building, apartment wholly, partly intended for sale to a buyer, excluding where the entire consideration has been received following insurance or completion certificate by the capable authority or its first occupation, whichever prior.
The supply of residential properties (flat/house/complex) also entails transfer of ‘land/exclusive share of land’ which is not taxable under GST; in that case, the value of the land will be accounted as 1/3rd of the total amount charged for such supply, says the Para 2 of the said Nfn. No: 11/2017-CT (R) dated: 28.06.2017.
So, GST on a flat/house shall be 2/3rd of the total consideration cost which is 12% of the total consideration including land /undivided share of land.
Input tax credit on goods/inputs (sand, cement, steel items etc.) and input services (Designing, planning, construction etc.)- The builders/developers are eligible to avail credit on goods and input services used in the course of development. The Section 16 along with Section 17(5) of the CGST Act, 2017 narrates that Builders/Developers are entitled to avail ITC of the GST paid on goods, inputs like: Sand, Cement, Steel, Gravel, Electrical cables, switches etc.; and Capital Equipments like: Mixer, Crane etc.; and input-services as: Manpower Supply Service etc.; Architectural services like Drawing, Designing etc.
Sub-contracted construction services (including or excluding materials) can also avail ITC as the provision don’t fall under clauses (c) and (d) of Section 17(5) of CGST Act, 2017. Thus, these people belong to the independent taxpaying category.
Input Tax Credit facility on Tripper, JCBs and Dumpers and other delivering transpiration– Sec. 17(5) (a) (ii) of the CGST Act, 2017 says that ITC is available on Tippers and Dumpers which are categorized as Motor Vehicles (under Clause (28) of Section 2 of the Motor Vehicle Act, 1988 read with Section 2(76) of the CGST Act, 2017).
GST levied on interstate stock transfer of input and capital equipment by the same builder– Supply of construction materials by the same builder from one to another site won’t attract GST, if the registration number of the construction activity is same. This kind of transfer can be made under a delivery challan. Again, with the same registration number if a builder/developer opens another business in any other state and is required to transfer capital equipment or inputs, is not liable to pay GST.
In terms of the Section 25(4) of the CGST Act, 2017, builder/developer with more than one registration number whether in a state or UTs or different states and UTs are liable to pay GST, as different registration numbers will be considered as two different entities for the purposes of GST and according to the clause 2 of Schedule-I to the CGST Act, 2017 this kind of supply invariably falls under taxable supply. GST paid on such supplies can be proceeded as Input tax credit by the recipient. The estimation of such supplies of will be as per provisions of Sections 15 and 18(6) of CGST Act, 2017 read with Rule 28 of CGST Rules, 2017.
In case builder avails ITC services on construction of flats out of which some are sold on payment of GST and rest sold without payment of GST– the provisions of Section 17(2) of the CGST Act, 2017 highlights that where the goods and services or the both used by registered person partly for the production of taxable supplies and partly for effecting tax excused supplies, then the amount credit will be reduced to so much of the input tax as it inferable as taxable supplies. Additionally, the sale of flats after issuance of completion certificate without GST payment as per the clause 5 of schedule-III to CGST Act are exempt supplies for the principle of Section 17(2) ibid as specified vide Section 17(3) mentioned earlier, read with clause (b) of paragraph 5 of Schedule II and clause 5 of schedule III to the CGST Act, 2017.
Under these circumstances the process of credit of entitled ITC has been described under the provisions of Rules 42 (for inputs and input services) and Rule 43 (for capital goods) of the CGST Rules, 2017. Anyhow, refund of un-used input credit is not allowed As per Notification No. 15/2017-CT (Rate) dated 28.06.2017 issued under the provisions of Section 54(3) of the CGST Act, 2017.
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Don’t Forget To Ask These Questions to Your Future Tenant
Selling/Renting properties online is easy-that we all know, but classifying genuine tenant from hundred random visitors is not as easy as it seems to be. When a prospective tenant visits your property chalk out a set of valid questions that you should ask to the person to find whether that person is a good fit or not for your property.
When you are ready to rent out your property to an unknown person, it’s really crucial to ensure that the future usage of your property is in the safe hands. Following questions can help save you the time and stress involved.
What is the reason you want change your present rented apartment?
Before anything else ask the reason behind shifting to a new property. Get more information about the valid reasons for moving. During interaction try to find out if there is any incidence of eviction from the current possession. Not always you will get honest answers from your prospective tenants, still you shouldn’t refrain from asking queries.
Ask about tentative moving-in date
Always check whether the tenant is in hurry to move in which may not be a good sign. Most landlords require prior notice of 30 days to do away with a lease. In case the tenant wants to move-in within a week, he may be contravening the contract with the existing landlord. A responsible tenant will start his search precendently of the shifting date.
The total number of occupants in the property (including pets)
Take information on the total number of occupants moving to the property. Your lease agreement should contain all the names of the occupants in it.
Monthly earning of your tenant
Though it’s not an easy question to ask, but it is also very important to have an idea about the earning of the tenant, so that you get your rents on time or really the person can afford the apartment or not. Ideally you should never rent your apartment to a person whose monthly income is less than 2.5 times of the monthly rent.
• To know about the financial position of your tenant ask-
• How long have you been into this profession? (Whatever his/her current profession is)
• What is your job role?
• Are you under any contractual job?
• What are your daily working hours? / Is there any rotational shifting?
What is the length of lease you are looking for?
Mostly lease duration is of 6 to 11 months for residential apartments. Ask your tenant about his/her preference. Ask him to pay one month’s advance rent and security deposit for your better security purpose while signing on the lease. In case the person looks hesitant while paying this advance amount, then you are likely to have a tough time having your monthly rents.
Things to remember
Avoid asking personal questions. Discrimination on the basis of age/sex/caste should be avoided.
Let the tenant also clarify his/her doubts regarding the lease contract.
Always ask for government id proof, bank acc details, office identification before heading towards any agreement.
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Centre Expands Carpet Area Under PMAY- Urban
Now Middle Income Group (MIG) apartments are going to have additional carpet area under the Pradhan Mantri Awas Yojana (PMAY) – Urban. Cabinet has approved the enhancement of carpet area under the MIG-I category. The carpet area has been enhanced from 90 sq mtr-120 sq mtr, while under MIG-II segment; it has been increased from 110 mtr to 150 mtr.
Carpet area is the area enclosed within the walls. This keeps out the width of the inside walls. Earlier builders used to charge for the super built-up area, which includes area of outer walls, balcony and lobbies, stairs and even lifts. Now that RERA is against the practice of super built up area and will set the measurement on the basis of the carpet area. Nevertheless, under PMAY, the area of the house is different for all the available categories and it’s the carpet area and not the super area on which the buyers will be charged for.
Union minister Ravi Shankar Prasad declared this revised measurements on a press conference. Briefing about the cabinet decision the union minister confirmed that under the MIG-I category, a 4% interest subsidy has been allotted for the beneficiaries with an annual income ranging in Rs. 6-12lacs, on a borrowed loan amount of 9 lac. Government’s decision to increase home size under Credit Linked Subsidy (CLSS) scheme will clear up unsold inventories, following by boosting up fresh market demand. Similarly, under the MIG-II category, the beneficiaries with annual income of Rs. 12 lac to 18 lac, get interest subsidy of 3% on a loan up to 12 lac.
Realtors’ bodies like CREDAI and NAREDCO are happy with this initiative taken by the government as they find the move quite favourable for the middle income group to emerge as an important investor class. Mahesh Somani, Head- East Zone, National Association of Realtors India (NAR) said, “Good news for property buyers who want to buy apartments with PMAY benefits. This is an incredible move by the government not only to push the affordable housing sector, but also to get the market a steady liquidity pool. Now, more developers will plunge into the market which would definitely usher new project launches in the current market.”
“Launch of new projects will definitely render the shortage of development under prime minister’s ambitious project –Housing for All by 2022,”- He added.
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