GST on Real Estate Sector: The real estate sector holds a pivotal position in any country’s economy, and India is no exception. In recent years, this sector has garnered significant attention. In this article, we will delve into the implications of the Goods and Services Tax (GST) on the real estate residential housing sector in India. According to Para 5(b) of Schedule II of the CGST Act, 2017, the construction of a complex, building, civil structure, or a part thereof, including a complex or building intended for sale to a bhttps://anptaxcorp.com/gst-on-real-estate-sector/uyer, either wholly or partially, is considered a supply of service.
However, there’s an important exception: this applies unless the entire consideration has been received after the issuance of a completion certificate, where required, by the competent authority or after its first occupation, whichever occurs earlier. This provision is crucial for understanding the application of GST in the real estate sector.
For GST to be applicable, there must be an underlying supply of goods or services, or both, for a consideration in the course or furtherance of business. This means that any transaction involving the construction of real estate, where there is a consideration involved and it is part of a business activity, falls under the purview of GST.
GST Rate Applicable to Real Estate (w.e.f 1 April 2019)
The GST rates applicable to the real estate sector vary depending on several factors. Here are the key points to consider:
(i) Affordable Housing: Under GST, affordable housing projects enjoy a reduced GST rate of 1% (without ITC) on the construction value. However, to qualify as affordable housing, the carpet area and pricing thresholds must adhere to specific guidelines set by the government.
(ii) Non-Affordable Housing: For non-affordable housing projects, the GST rate is higher, currently set at 5% on the construction value. This applies to most residential properties that do not meet the criteria for affordable housing.
(iii) All Commercial projects shall attract 12% GST with Input Tax Credit.
In case the carpet area of a commercial premise in a residential project is not more than 15% of the total carpet area of the project, the commercial premise of that residential project will also be eligible for concessional GST rate of 5% (without ITC).
Important Terms Used in Real Estate
(i) Residential Project
As per RERA, a project shall mean a Residential Real Estate Project (RREP), when the carpet area of its commercial premises in toto is not more than 15% of the total carpet area of the project.
(ii) Affordable Residential Apartment
Affordable residential apartment means residential apartments, carpet area of whose premises does not exceed 60 SQM (645 SFT) in metropolitan cities or 90 SQM (969 SFT) in other places, and gross consideration of its premises does not exceed Rs.45 Lakhs. Gross consideration includes consideration for flat, amount charged for land/lease rent, preferential location, development charges, parking charges, common facilities, etc.
(iii) FSI (Floor Space Index)
The ratio of a building’s total floor area (gross floor area) to the size of the piece of land upon which it is built.
(iv) Carpet Area
The net usable floor area of an apartment which excludes the area covered by external walls, services shafts, exclusive balcony or veranda exclusive, open terrace area and includes area covered by internal partition walls.
Provisions of GST on Real Estate Sector Procurement & Related charges on it’s violation
80% of the procurement of goods and service should be from the registered supplier. In the event, the procurement from registered supplier is less than 80% in a financial year, the GST at the rate of 18% shall be paid on the shortfall under RCM. Such liability shall be added to the output liability of any month not later than June of the subsequent year.
For the purpose of computing 80% of procurement, Services by way of development right, FSI, Long term lease of land, Electricity, HSD, motor spirit and natural gas shall be excluded. Where the shortfall includes purchase of cement from un registered supplier, the GST rate shall be 28% and the GST under RCM shall be paid in the month in which cement is procured.
Where the shortfall includes purchase of capital goods, the GST rate shall be the rate applicable to such capital goods. Project-wise account of inward supplies is to be maintained for supplies from registered suppliers and unregistered suppliers. Such details are to be electronically submitted in the portal before 30th of June of next year in the prescribed form.
Time of supply Vs GST liability of Builders/Developers under Real Estate
(i) GST liability on sale of flat to land owner
Builder (developer) shall pay GST on flats sold to the land owner at the same rate i.e. 1% or 5% for residential projects and 12% for commercial projects. Time of supply shall be the receipt of completion certificate. The tax so paid shall be eligible for ITC if the land owner further sells the flats to other buyers. The ITC not availed shall be reported every month in form GSTR 3B.
(ii) GST liability on Development right, FSI & Long-term lease of Land under Real Estate
Where premises are not fully sold before the receipt of completion certificate, the builder shall pay GST at the rate applicable to the project on the development right, FSI, long term lease of land on value proportion to the premises unsold on the date of receipt of the completion certificate. The value of similar premises sold (minus 1/3rd towards land value) at the nearest point in time shall be considered for the valuation of unsold portion of the project.
Input Tax Credit applicable to Real Estate Sector
It is important to note that builders and developers can claim input tax credit on various expenses incurred during construction, such as raw materials and services. This ITC can help offset the GST liability.
In case of builders & developers, the ITC exclusively attributable to taxable supply (T4) shall be zero since the inwards supplies are used for taxable supply (sale during construction) as well as sale after completion of construction. ITC exclusively attributable to activities other than business (T1), ITC exclusively attributable to exempt supplies (T2), ITC restricted u/s 17(5) (T3) and ITC exclusively attributable to taxable supply (T4) shall be determined and declared at summary level in GSTR 3B.
In case of construction service (sale of under construction premise) apportionment of ITC under rule 42 shall be made every month project-wise. The apportionment shall be made on the basis of estimated carpet area of flats which may be sold during construction and estimated carpet area which may be sold after completion. The eligible credit computed under rule 42 shall be computed separately for CGST, SGST, UTGST and IGST and declared in GSTR 3B or form GSTR DRC-03.
The final reversal of proportionate ITC shall be computed at the end of the project for the entire project from the commencement of the project or 1st July, 2017 whichever is later, to the completion of the project. This shall be done before filing the return for Sept following the end of the financial year in which the project is completed. If the eligible credit is more than the credit already availed, the differential credit shall be availed and if the eligible credit is less than the credit availed, then the excess credit taken shall be reversed along with interest from 1st April of the succeeding year till the date of payment.
Where any input or input services are used for more than one project, the ITC on the same shall be distributed to each project on a reasonable basis. The eligible and ineligible credit on capital goods shall be declared in GSTR 3B. ITC on capital goods shall be availed on proportionate basis as the capital goods are commonly used for the sale during the construction and sale after completion of construction. The computation of final eligible credit and reversal is similar to ITC on input and input services. Where the useful life of the capital goods exceeds the project period, the proportionate credit on such capital goods may be availed in the next project where the same is being used.
Conclusion
In conclusion, the GST implications on the real estate sector in India are significant. Understanding the applicable GST rates and the conditions for eligibility under different categories is crucial for both builders and buyers. It’s advisable for all stakeholders in the real estate sector to stay updated with the latest GST regulations to ensure compliance and make informed decisions in this dynamic industry.
Notification of GST council dated.7th May 2019: https://gstcouncil.gov.in/sites/default/files/faq/FAQ-Real-estate-sector.pdf
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