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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.
Below are the new tax rates without ITC for housing projects applicable w.e.f 1st April 2019.
|1%||New affordable housing projects|
|Ongoing affordable housing projects opting for new rates|
|5%||Ongoing other than affordable housing projects|
|New other than affordable housing projects|
|1%||Projects with commercial space <15% of total carpet area|
Conditions to be satisfied for availing the above rates:
However, the value of the following services used in the construction of residential apartments are excluded for this calculation:
The promoter should pay GST at 18% on 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).
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.
An affordable residential apartment is one in which:
For example, Mr. A is a beneficiary of PMAY CLSS and the carpet area of his house being constructed is 150 square meter. 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 as an affordable residential apartment because Mr. A is a beneficiary of PMAY CLSS.
A project is considered as an ongoing project if the following conditions are satisfied:
Example 1: This condition is not applicable for 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 as an ‘ongoing project’. It will be treated as a new project and the new tax rates will apply.
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.
Yes, in 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.
|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|
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:
The promoter is liable to pay GST on 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, transfer of development rights by such an individual to the promoter is liable to GST as it is considered as supply of service under section 7 of CGST Act. Also, in case of outward supply of TDR by one developer to another, GST is applicable at 18% on reverse charge.
|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 residential apartment that remains unbooked on the date of issue of Completion Certificate/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 long term lease is related to commercial space.|
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.
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.
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.