Real estate is an important pillar of the Indian economy. Under the earlier tax regime, various taxes like VAT, service tax, stamp duty, and registration charges were paid by the buyers.
However, under GST a single rate of 12% is applicable on under construction properties whereas no GST is applicable on completed or ready to sale properties only if the Completion Certificate (CC) has been issued.
In March 2019, the GST Council cut the tax rates to 5% from 12% on residential properties and 1% from 8% for the affordable housing segment. However, ITC benefits will not be available under the new tax rate policy.
1. What are the new GST rates on the construction of residential apartments?
Below are the new tax rates without ITC for housing projects applicable w.e.f 1st April 2019.
|1%||New affordable housing projects commenced on or after 01.04.2019|
|1%||Ongoing affordable housing projects as of 01.04.2019 (when the promoter opted for new rates)|
|5%||Ongoing projects other than affordable housing projects as of 01.04.2019|
|5%||New projects other than affordable housing projects commenced on or after 01.04.2019|
|1%||Projects with commercial space < 15% of total carpet area|
Conditions to be satisfied for availing of the above rates:
- Input tax credit claim: ITC cannot be claimed.
- Purchase of inputs from registered persons: At least 80% of the total value of inputs and input services should be purchased from registered suppliers.
However, the value of the following services used in the construction of residential apartments are excluded from this calculation:
- Grant of developmental rights
- Long term lease of land
- Floor space index
- Value of electricity
- Value of high-speed diesel
- Motor spirit and natural gas
The promoter should pay GST at 18% on a reverse charge basis on all such inward supplies to the extent short of 80% of inward supplies from registered suppliers except cement on which tax has to be paid at 28% (if purchased from unregistered persons).
2. What is a residential real estate project?
A Real Estate Project in which the carpet area of the commercial space is not more than 15% of the total carpet area of all apartments in the project.
3. What is an affordable residential apartment?
An affordable residential apartment is one in which:
- Carpet area is up to 60 square meters for metropolitan cities;
- Carpet area is up to 90 square meters for cities and towns other than metropolitan cities and;
- The gross amount charged by the builder is not more than Rs.45 lakh.
For example, Mr A is a beneficiary of PMAY CLSS and the carpet area of his house being constructed is 150 square meters. Is he eligible for a new tax rate of 1%?
Yes, only if the developer has not exercised the option to pay tax at old rates. Here, the area in the square meter is greater than the prescribed limits but it is still considered an affordable residential apartment because Mr A is a beneficiary of PMAY CLSS.
4. How to calculate Rs 45 lakh limit while checking eligibility for an affordable housing project?
You have to consider all the charges, including preferential location, parking, development, common facility charges etc., while calculating the Rs 45 limit. However, you can exclude the stamp duty, maintenance charges, deposits for maintenance of the apartment, and maintenance of common infrastructure.
5. Do I have to pay GST on a single residential house?
If you have bought a single residential house before obtaining the completion certificate from the competent authority, you have to pay GST. However, if the seller has received the completion certificate before the agreement, you don’t have to pay GST.
6. What is the GST rate for a single residential house?
GST@ 1% will be applicable if your single residential house falls under an affordable residential housing project. If it is not an affordable residential housing project, you should pay GST@ 5%.
7. What is an ongoing project as of 1st April 2019?
A project is considered an ongoing project if the following conditions are satisfied:
- Where Commencement Certificate is required and has been issued by the competent authority on or before 31st March 2019 and the same is certified by a registered architect, chartered engineer or a licensed surveyor that the construction of the project started on or before 31st March 2019.
For example, in the case of a single tower comprising 50 floors and registered as a single project, separate commencement certificates may be issued by the competent authority. If one or two certificates are received on or before 31st March 2019 and some later, the same is still considered an ongoing project.
- A Commencement Certificate where not required to be issued by the competent authority, then the same shall be issued by a registered architect, chartered engineer or a licensed surveyor that the construction of the project started on or before 31st March 2019.
- The Completion Certificate is not issued on or before 31st March 2019. For instance, if a project has three blocks and a completion certificate is received for one block prior to 1st April 2019 and the rest are received after this date. In such a case, the project is considered an ongoing project because as per the Notification issued by Government, a project is considered complete only if the Completion Certificate is issued for the entire project and not a part thereof.
- The first occupation of the project has not taken place before 31st March 2019. For instance, if an occupation certificate is received only for a part of the premises (up to 31st March 2019) in a huge project and not the entire project, the same is considered an ongoing project.
- Apartments are partly or wholly booked on or before 31st March 2019.
Example 1: This condition is not applicable for the redevelopment of slum rehabilitation projects as the beneficiaries, in this case, are not required to pay any monetary consideration for flats allotted to them.
Note: A project where bookings have not started but the construction has started before 31st March 2019, the same will not be considered an ‘ongoing project’. It will be treated as a new project and the new tax rates will apply.
8. What are the criteria for certifying that the construction of a project has started by 31st March 2019?
If the earthwork for site preparation of the project has been completed and excavation for the foundation has started on or before 31st March 2019, a construction project shall be considered to have been started on or before 31st March 2019.
9. Does a promoter or a builder have the option to pay tax at old rates of 8% & 12% with ITC?
Yes, in the case of an ongoing project, a promoter or builder can exercise a one time option to pay tax at old rates. This should be communicated to the Jurisdictional Commissioner by 20th May 2019 in the prescribed form. If not communicated, it is deemed that they have opted for making tax payments at new rates. Also, modification of options is not allowed once submitted.
- This option needs to be exercised for each ongoing project separately. Thus, promoters may exercise different options for different ongoing projects undertaken by him.
- This option is also available for specific schemes like PMAY, Housing For All, RAY or any other housing schemes of the Central or state government.
- This option can be exercised by a promoter or a builder and not the buyer.
10. What is the rate of GST applicable w.e.f 1st April 2019 on the construction of commercial apartments [shops, godowns, offices, etc.] in a real estate project?
|Description||Rate (after deduction of the value of land)|
|Commercial Apartments in Residential Real estate Project (RREP) where the construction has commenced on or after 1st April 2019 or; An ongoing project where the promoter has opted for new rates||5% without ITC on the total consideration|
|Commercial Apartments in Real estate Project (REP) other than RREP or; An ongoing project where the promoter has opted for old rates||12% with ITC on the total consideration|
11. What are the GST rates on TDR, FSI and long term lease of land?
Transfer of development rights or FSI by way of an agreement on or before 31st March 2019 is exempted from tax even if the consideration for the same is paid (cash or kind) in part or full on or after 1st April 2019.
Below are the tax rates:
- If the supply of TDR, FSI or long term lease of land is used for the construction of residential apartments, Tax on TDR is to be computed on the basis of the following formula: GST is applicable on such value which is proportionate to the construction of residential apartments that remain un-booked on the date of issue of Completion Certificate/the first occupation.
The rate of tax is 18% subject to a tax amount which is limited to 1% or 5% of the value of the apartment depending upon whether the TDR/FSI is used for an affordable residential apartment or other than an affordable residential apartment.
- If the supply of TDR, FSI or long term lease of land is used for the construction of commercial space: GST at 18%.
12. Who is liable to pay GST on TDR and floor space index?
The promoter is liable to pay GST on a reverse charge basis on TDR or floor space index supplied on or after 1st April 2019. Even if a landowner is not engaged in a regular business of land-related activities, the transfer of development rights by such an individual to the promoter is liable to GST as it is considered a supply of service under section 7 of the CGST Act. Also, in case of outward supply of TDR by one developer to another, GST is applicable at 18% on reverse charge.
13. At what point of time, the promoter should discharge its tax liability on the supply of TDR, FSI and long term lease?
|Description||Point of taxation|
|TDR||The liability to pay tax arises on the date of completion or first occupation of the project whichever is earlier. Thus, GST would be applied on the value which is proportionate to the construction of a residential apartment that remains unbooked on the date of issue of Completion Certificate/the first occupation.|
|FSI||For FSI received after 1st April 2019: If consideration for FSI is in the form of construction of commercial or residential apartments – Liability arises on the date of issuance of Completion Certificate. If consideration for FSI is in monetary form–For Residential Apartment Construction: Liability arises on the date of issuance of Completion Certificate. For Commercial Apartment Constructions: Liability to pay tax shall arise immediately.|
|Long term lease||For long term lease received after 1st April 2019: Liability arises on the date of issuance of the Completion Certificate in case of construction of residential apartments. However, liability to pay tax shall arise immediately if such a long term lease is related to commercial space.|
14. Is the option to pay tax at old rates of 12% or 8% (with ITC) available to the promoter in respect of the New Project (commenced on or after 1st April 2019)?
No, there is no such option. This option is not available even for schemes like PMAY, Housing for All, RAY or any other housing schemes of the Central or State Government. For projects which commence on or after 1st April 2019, the promoters need to mandatorily pay tax at new rates.
15. Can a promoter revise an invoice as per section 34 of the CGST Act by way of issuance of debit/credit notes?
In case invoices issued by a promoter prior to 20th May 2019 are not in accordance with the option of tax rates exercised by him, a debit/credit note can be issued to bring the transaction in conformity with the final option exercised by him.
16. What is the classification and rate of tax on works contract service provided by a contractor to a developer or promoter under the new scheme?
- Affordable Housing Project – 12%, provided affordable housing space is more than 50% of the total carpet area.
- Residential housing project Other than Affordable housing – 18%
- Commercial Housing -18%
17. How to compute tax adjustment of a credit note where a unit was booked prior to 1st April 2019 but cancelled at a later date?
Suppose the buyer paid a gross booking amount of Rs.10 lakhs before 1st April 2019. The developer paid GST of Rs.1.2 lakhs (12% of Rs.10 lakhs) on the booking amount. In this case, a developer can make a tax adjustment of Rs.1.2 lakhs at the time of cancellation provided the entire amount is refunded to the buyer on or before September 2019.
18. Is GST applicable on the house when Completion Certificate (CC)/ Occupational Certificate (OC) is not received?
Yes, you have to pay GST when buying a house before receiving CC or OC.
19. Is GST applicable for completed flats?
You don’t have to pay GST when buying a flat after obtaining the completion certificate or occupational certificate.
20. Who pays GST? Builder or buyer?
The buyer has to pay GST to the builder at the time of purchase.
21. Can a builder collect GST from customers?
Yes, the buyer has to collect the GST from customers.
GST on WBHIDCO’s Co-operatives
West Bengal Housing Infrastructure Development Corporation Ltd (WBHIDCO) plans and executes development projects in the entire 6,000–7,000 hectare area in Rajarhat, Kolkata, West Bengal. The erstwhile planning area of WBHIDCO is divided into four Action Areas: Action Area I, Action Area II , Action Area III. There is another area in between Action Areas I and II, which is the Central Business District (CBD). The West Bengal Housing Infrastructure Development Corporation or HIDCO is a public sector undertaking headquartered in Narkelbagan, Action Area – I of New Town, Kolkata, West Bengal, India. WBHIDCO offers one of the most affordable housing schemes in New Town Kolkata. Under the Co-operative scheme, a large number of plots are allotted based on a person’s income. Any resident of India above the age of 18 with a domicile certificate, along with a PAN card and regular income, can apply.
The various categories based on monthly income are as follows:
|LIG (Low Income Group)||upto Rs 30,000|
|MIG (Middle Income Group)||Rs 30,000 to Rs 80,000|
|HIG (High Income Group)||Above Rs 80,000|
No GST on completed projects
Clarifying that units that have received a completion certificate do not attract any GST (goods and services tax), the finance ministry on December 8, 2018 asked real estate developers to pass on the benefits they get in the form of input tax credit to homebuyers.
“It is brought to the notice of buyers of constructed property that there is no GST on sale of complex/ building and ready to move in flats where sale takes place after issue of completion certificate by the competent authority,” the ministry said in a statement.
In fact, the anti-profiteering body ordered Gurgaon-based developer Pyramid Infratech to compensate over Rs 8.22 crore to 2,476 flat owners, who had invested in the company’s two affordable housing projects, for not passing on the GST benefit. The builder was also served a show-cause notice by the watchdog, asking it why a penalty not be imposed on him. This was the first instance of a developer attracting a penalty for not passing on GST benefits.
Passing its order on 36 applications filed by 102 homebuyers, the National Anti-Profiteering Authority (NAPA) on September 18 said the builder was liable to pass on the benefit made under the new tax regime’s input tax credit (ITC) system, and it was not that the builder was paying anything from his own pocket. The watchdog gave the company three-month’s time to comply with its order and also directed the Haryana tax commissioner to ensure its order is carried out, and submit a report accordingly.
Source: cleartax.in, wbhidcoltd.com, proptiger.com