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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Key Facts To Know About GST For Real Estate Developers/Builders
