All about GST on Real Estate in India

Prior to 1^st April 2019, 12% GST is levied on payments made towards the Ready-to-Move-in Flats or Under Construction Property where the completion certificate has not been issued at the time of sale. But in a bid to revamp the real estate sector, GST Council in its 34^th meeting held on 19^th March 2019 has decided to reduce the GST rate from existing 12% (8%) to 1% and 5% with certain conditions.

GST on Real Estate Projects and Residential Real Estate Projects

GST at 1% without Input Tax Credit (ITC) (Effective Rate 1% after deducting Land Cost) would apply to:

1. All Affordable Residential Apartments i.e. houses having carpet area up to 60 sqmtrs (645 sqft) in metropolitan cities or 90 sqmtrs (968 sqft) in non-metropolitan cities/towns and value up to Rs.45 lakh (both for metros and non-metros). Mumbai, Delhi, Chennai and NCR (National Capital Region) comes under Metropolitan Cities List.
2. Also to the on-going affordable housing project (Residential Real Estate Project) under central and state housing schemes (where an effective rate of 8% after deducting land cost was levied).

GST at 5 % without Input Tax Credit (ITC) (Effective Rate 5% after deducting Land Cost) would apply to:

1. All houses other than houses under Affordable Residential Projects in New Projects.
2. On Houses booked under prior to 1^st April 2019, the new tax would be levied on the Instalments/EMI payable on or after 1^st April 2019.
3. Commercial apartments such as shops, offices, Kiosks etc. in a residential real estate projects (RREP) in which the carpet area of commercial apartment is not more than 15% of the total carpet area of all apartments including residential apartments (limited to Delhi, Noida, Greater Noida, Ghaziabad, Faridabad, Gurgaon, Hyderabad, Kolkata and Mumbai (whole MMR).

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Conditions for New Tax Regime of GST on Real Estate

New Tax Rates shall be applicable, subject to the following conditions:

1. An input tax credit is not allowed to be claimed on inward supplies; and
2. Minimum 80% of the input and input services (excluding capital goods, long term lease (premiums), FSI and TDR/JDA shall be purchased from a registered person.

In case of any shortfall in purchases of input and input services of 80% from registered person, the tax shall be paid on the differential shortfall under the RCM (Reverse Charge Mechanism) Basis by the builder at:

1. 18 per cent on input and input services; and,
2. 28 per cent on cement purchased from the unregistered person; and
3. On capital goods at applicable rates.

Applicability on On-going Project not completed up to 31/03/2019

Builders have been given two options to be opted within the prescribed time (by 10^th May 2019) or else new tax rate shall be applicable by default

1. Enter into new tax regime as per ITC transitional provisional for an ongoing project.
2. Continue in the old tax regime of 8% or 12% as applicable with ITC for projects where both construction and actual bookings have started before 1^st April 2019 but not completed by 31^st March 2019.

Treatment of TDR/FSI and long-term lease (premium) for projects commencing after 01/04/2019:

1. The Service of Supplying TDR/FSI and Long Term Lease by Landlord to Builder is exempt from GST to the extent it leads to the construction of residential apartments. However, the builder needs to sell such residential apartments/flats before the issuance of completion certificate and pay applicable tax on the same.
2. In case the flats are sold after issuance of completion certificate, exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after an issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses. The liability to pay tax shall be on the builder under the Reverse Charge Mechanism.
3. The tax has to be paid on the date of issuance of the completion certificate, also for the JDA taxability the date has been shifted to date of issuance of completion certificate.

Read More: GST on Transferable Development Rights

Conclusion:

As always, the new tax regime comes with several pros and cons, pros being the tax burden on the ultimate buyer reduces, however, on the other hand, the ITC becomes the cost of the builder which may increase the price. But the main problem is for the builder who opts for Transition of ITC in case of on-going projects because the calculation of reversing the credit is a complex and tedious task.