GST Impact on Real Estate

Introduction:

Real Estate sector plays a prominent role GDP in Indian Economy. Goods and Services tax are those taxes that are levied on Supply of Goods or Services or Both. Since ‘Construction’ is a service under GST it is also taxable. GST structure of Construction is different from other goods and services. In recent amendments GST rate applicable for construction gone through some changes

Real Estate in Pre GST Regime : Various Indirect Tax Applicable:

• Service Tax
•  VAT (Varies from State to State)
•  Registration Charges (Varies from State to State)
•  Stamp Duty Charges (Varies from State to State)

There were many restrictions on setoff of input of  one tax against the other tax .

What is construction under GST?

Under GST, construction is defined under term “Works Contract”. As per sec-2(119) of CGST Act ,Works Contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.

Under Schedule II,

1. Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the com- petent authority or before its first occupation, whichever is
2. Works contract including transfer of property in goods (whether as goods or in some oth- er form) involved in the execution of a works contract, are regarded as  supply of Service.

The Expression “Competent Authority” means :

The Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:—

1. An architect registered with the Council of Ar- chitecture constituted under the Architects Act, 1972; or
2. A chartered engineer registered with the Institution of Engineers (India); or

A licensed surveyor of the respective local body of the city or town or village or development or planning authority;

GST Rates :

 

Sl. No	Particulars	Applicability	Old Rates		New Rates
			Rate of Tax	Input Tax Credit	Rate of Tax	Input Tax Credit
1	On ready-to-move (RTM) properties for which completion certificates are issued	Not applicable – Be- cause Sale of building is treated as activity or transaction which shall be treated nei- ther as a supply of good nor a supply of service as per SCHED- ULE III of CGST Act,2017	–	Not availa- ble	–	Not available
2	On Under Construction Properties (For Homes Purchased Under Credit- Linked Subsidy Scheme) (Affordable Housing)	Applicable as supply of services as per Schedule I of CGST Act, 2017	8%	Available	1%	Not available
3	On Under Construction Properties (Other than above)	Applicable as supply of services as per Schedule I of CGST Act, 2017	12%	Available	5%	Not available
4	On resale properties	Not applicable	–	Not availa- ble	–	Not available
5	On Land purchase and sale	Not applicable. As per Schedule III, sale of land is neither supply of goods nor services.	–	Not availa- ble	–	Not available
6	Works contract	Applicable	18%	Available	18%	Available
7	Composite supply of works contract	Applicable	18%	Available	18%	Available
8	Composite supply of works Contract to Gov- ernment Authorities	Applicable	12%	Available	12%	Available
9	Composite supply of works contract – for use by general public	Applicable	12%	Available	12%	Available
10	Composite supply of works contract – Afforda- ble Housing	Applicable	12%	Available	12%	Available

New Rates does not apply to “Commercial Complex”

What is Affordable Housing?

Affordable houses are :

Area of 60 square meters in case of metros / 90 square meters in case of non- metros and Value up to RS.45 lakhs, & Affordable houses being construct- ed under the existing housing schemes presently.

What is Commercial Complex?

Commercial Complexes are those which are not considered as residential buildings or flats.

Example: A commercial area is real estate intended for use by for-profit businesses, such as office complexes, shopping malls, service stations and restaurants.

What if some portion of Residential Building has Commercial Status?

The Council also clarified that projects with up to 15% commercial space will be treated as resi- dential property

GST on Reverse Charge Mechanism (RCM):

To be paid by the Builder :

Purchased From Un- registered Person	Cement	RCM @28%	Ineligi- ble
	Capital Goods	RCM @ respective Capital Goods rate.
	Others, (excluding TDR, FSI, JDA, Long Term Lease).	If more than 20 % of total purchases are from URD – RCM shall be paid @ re- spective rates by builder

Records To be Maintained:

As per Rule 56 (14) of the CGST Rules, 2017, every registered person executing works contract shall keep separate accounts for works contract showing :-

• The names and addresses of the persons on whose behalf the works contract is execued
• Description, value and quantity (wherever applicable) of goods or services received for the exe- cution of works contract
• Description, value and quantity (wherever applicable) of goods or services utilized in the execution of works contract
• The details of payment received in respect of each works contract
• The names and addresses of suppliers from whom he received goods or