GST & Its Impact on Real Estate CA. Pulak Saha
Agenda Impact of 33 rd and 34 th GST Council Meeting Section 1 Section 2 Anti-profiteering – An update Section 3 Recent Advance Rulings GST & Its Impact on Real Estate February 2020 2
Section Impact of 33rd and 34 th GST Council meeting
Impact of 33 rd and 34 th GST Council meeting Introduction GST rates for Real Estate – Composition Scheme Non-composition rates New exemption entries Supplies taxable under reverse charge Time of supply Input Tax Credit GST & Its Impact on Real Estate February 2020 4
Introduction Snapshot of amendments post GST Council meetings The Government issued seven (7) notifications for implementing GST Council’s decisions in its 33 rd and 34 th meetings GST rates applicable for new and on-going projects under a Composition scheme Reverse charge liability for discharging GST on TDR /FSI/ Long Term Lease Premium Exemption for supply of TDR/FSI/Long Term Lease Premium for residential projects GST rates applicable for on-going projects - option to stay under regular / erstwhile scheme New mechanism for calculating ITC reversal for construction projects Assigning time of supply for supply of TDR / FSI/Long Term Lease and construction services GST & Its Impact on Real Estate February 2020 5
Introduction New concepts “Promoter” definition under GST Real Estate Project or “REP” Residential Real Estate Project law akin to definition under RERA means the following for the purpose or “RREP” is a REP where carpet of sale: area of commercial apartments < Includes a person who constructs or 15% of total carpet area of the causes to construct; or develops land • development of a building; project into a project for selling to other • conversion of existing building person into apartments; • development of land into plots “Affordable residential “Apartment booked on or “On-going project” apartment” before 31 March, 2019” • commencement certificate issued • where carpet area < 60 m2 in • time of supply for construction on before 31 March 2019; and metropolitan cities*; or < 90 m2 or before 31 March, 2019; and • construction started before 31 in other cities / towns; and • at least 1 installment received March 2019; and • gross amount charged < INR 45 before 31 March, 2019; and • completion certificate not issued lakhs; or • allotment or sale agreement before 31 March, 2019; and • apartment in on-going project issued before 31 March, 2019 • apartments partly or wholly under schemes notified earlier booked before 31 March, 2019 * Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with respective geographical limits prescribed by an order issued by the Central or State Government GST & Its Impact on Real Estate February 2020 6
GST Rates for Real Estate – Composition Scheme New Composition scheme –Effective rates* REP RREP Commercial property Commercial Affordable General Affordable General apartments residential Residential residential residential / property 12% 1% 5% 1% 5% 5% • Procurement of 80% of inputs and inputs services (except TDR, long term lease premium, non-GST supplies) needs to be from registered suppliers • GST payable @18% under RCM on the shortfall in fulfilling 80% threshold (cement is taxed @28%) • Procurements attracting RCM (legal services, overseas procurements, etc.) will be treated as procurements from registered persons • 80% threshold is required to be fulfilled on a project-wise basis for each financial year and reconciled by 30 June of the following year • GST liability is to be paid in cash only, tax however to be collected from the buyer • GST on purchase of capital goods from unregistered suppliers payable under RCM at the applicable rates * 1/3 abatement for value of land would be available to determine the effective rate GST & Its Impact on Real Estate February 2020 7
Non Composition Rates GST rate on outward supplies Construction services Apartment in on-going Commercial apartments General Residential affordable housing projects 8%* 12%* • “Option” to continue under 8% or 12% for residential projects was to be exercised by 10 May 2019 on project-wise basis, otherwise composition rates of 1% or 5% would be applicable • Invoices were supposed to be issued as per the option exercised • Option to be exercised in Form annexed as Annexure IV to the Notification No. 3/2019 • ITC available * 1/3 abatement for value of land would be available to determine the effective rate GST & Its Impact on Real Estate February 2020 8
Non Composition Rates Concessional GST rate on inward supplies Particulars GST rate Supply of works contract service to a promoter providing construction of 12% (subject to affordable residential apartment and discharging GST @ 1% for ongoing conditions) as well as new projects Conditions – 1. Carpet area of affordable residential apartments should not be less than 50% of the total carpet area of all apartments in the project; 2. Value for affordable residential apartments should not exceed Rs. 45 lakhs 3. Value stated above to be determined based on value of similar apartments booked nearest to date of signing contract for supply of works contract service However, if at the end of the project, the carpet area is found to be less than 50% of the total carpet area of all apartments in the project, then differential GST to be paid by the promoter under RCM. (Differential GST = GST rate otherwise applicable – 12%) GST & Its Impact on Real Estate February 2020 9
New Exemption Entries Supply of TDR/FSI/Long Term Lease Supply* of TDR/ FSI/ upfront payment for Long Term Lease of 30 years or more *Applicable for supplies Residential Commercial post 1 April 2019 Apartment projects GST to be discharged by the promoter GST to be paid under Exemption on supply RCM on value of No exemption - GST to attributable to area of unsold apartments on be paid under RCM No exemption from GST on residential apartment date of issuance of @18% periodic payment for Long OC/CC Term Lease No exemption on supply GST liability - attributable to post OC/CC 1%- Affordable sales 5%- Others GST & Its Impact on Real Estate February 2020 10
Supplies Taxable Under Reverse Charge 1 Service supplied by any person by way of TDR or FSI for construction of a project by a promoter Builder to pay applicable GST 2 Long term lease of land (30 years or more) by any under Reverse Charge person against consideration in the form of upfront amount and/ or periodic rent for construction of a project by a promoter. 3 Excess procurement (above 20%) of inputs and input Builder to pay GST under services from unregistered person Reverse Charge @ 18% 4 Procurement of cement from unregistered person Builder to pay GST under Reverse Charge @ 28% 5 Procurement of capital goods from unregistered Builder to pay applicable GST person by promoter who has availed benefit of 1%/5% under Reverse Charge GST rate GST & Its Impact on Real Estate February 2020 11
Time of supply - TDR/FSI/Upfront long term lease premium Supply after 1 April, 2019 Supply till 31 March, 2019 Development Rights / FSI/long term lease for residential projects Development Rights Registered Developer Any person Promoter person Construction service Construction service or cash or upfront premium Time of supply of both services is the date of transfer of possession or right in constructed complex by conveyance deed or similar instruments Time of supply is the date of issuance of completion (Notification No 04/2018 – Central Tax (Rate) certificate or first occupation, whichever is earlier dated 25.01.2018) If the supplier of TDR was unregistered and time of supply is post 01.04.2019,whether the Developer be liable to pay GST on supply of TDR under RCM and what would be the applicable GST rate? Is Landowner liable to pay GST on supply of Development Rights where time of supply is on / before 31 March 2019? GST & Its Impact on Real Estate February 2020 12
Input Tax Credit Total eligible ITC would be Transition for On-going The new scheme provides computed based on the projects opting for the new for reversal of ITC on the following parameters as on tax rate following parameters 31-03-2019 • On-going projects opting • Entire ITC availed in • Percentage of booking for new tax rates shall respect of the project from transition ITC as per 01.07.2017 (incl. transition • Percentage of invoicing mechanism provided in credit) to be computed Notification • Percentage of • Total carpet area of the consideration received • Transition would be on a project to be bifurcated pro-rata basis taking into into commercial and consideration credit in residential • Percentage of completion proportion to booking of of construction the flat and invoicing done • Total eligible ITC would be for the booked flat, subject proportionately allowed to a few safeguards only to the extent of the tax paid on apartments taxed at full rate. GST & Its Impact on Real Estate February 2020 13
Section Anti-Profiteering
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