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Guidance note of GST rate on Real Estate

Apr 18, 2019 by Rajesh Bhauwala in GST Litigation

1. GST rates for Ongoing Projects (Where option not exercised for old rates) and New Projects (01.04.2019 onwards):

GST rate on Real Estate on ongoing projects are given in the table below:

S.No.	Category	Effective GST Rate	Conditions	Remarks
a.	Residential Projects a. Affordable	1%	No ITC	–
a.	b. Non-Affordable	5%	No ITC	Up to 15% carpet area of commercial space allowed. The rate will be the same as for residential units.
b.	Commercial Projects	12%	With ITC
c.	Mix Projects (Commercial and residential projects)			Where Commercial space exceeds 15%
	Commercial	12%	Proportionate ITC
	Affordable	1%
	Non-Affordable	5%

Meaning of Affordable Housing:

A Residential House/flat of carpet area of up to 90 Sqm(968.752 sqft) in Non-metropolitan Cities/towns having a value up to 45 Lacs.
A Residential House/flat of Carpet area of up to 60Sqm (645.835 sq ft.) in Metropolitan cities/towns having a value up to 45 Lacs.

Note: Metropolitan cities are Bengaluru, Chennai, Delhi NCR (Limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (Whole MMR).

2. Meaning of Ongoing Projects:

Commencement certificate is issued on or before 31.03.2019
Where commencement certificate is not required, it should be certified by Architect or Chartered Engineer or a licensed surveyor of the respective local body of the city or town or village or development or planning authority that the project has started on or before 31.03.2019.
Completion certificate has not been issued or the first occupation has not been done before 31.03.2019.
Flats/ units have been partly or wholly booked on or before 31.03.2019.
The Construction of the project shall be considered as started before 31.03.2019 if the earthwork for site preparation for the project has been completed and excavation for the foundation has been started.

3. GST rates for ongoing Projects:

(Where option exercised for old rates before 10^th May 2019 in the prescribed form)

S.No.	Category	Effective GST Rate	Conditions
a.	Residential Projects a. Affordable	8%	With ITC
a.	b. Non-Affordable	12%	With ITC
b.	Commercial Projects	12%	With ITC
c.	Mix Projects (Commercial and residential projects)
	Commercial	12%	With ITC
	Affordable	8%
	Non-Affordable	12%

4. An important condition of apartment booked before 31.03.2019:

Part of supply of construction of which has the time of supply on or before 31.03.2019 and
At least one installment has been credited to the bank account of the registered person on or before 31.03.2019 and
An allotment letter or sale agreement or any other similar document evidencing booking of the apartment has been issued on or before the 31.03.2019.

5. Exercising the option:

If Option is not exercised then new rates will be applicable W.E.F. 01.04.2019 on all ongoing projects.
A builder can exercise option project wise.
An option has to be exercised before 10.05.2019
GST rates for the period between 01.04.2019 to 10.05.2019 (period of exercising the option) will be as per option exercised.
Options form is as per Annexure IV of Notification.

6. How to pay GST @ 1% or 5% in New Scheme:

It is to be paid by Cash Ledger only.
However, the amount of ITC attributable to the construction of project whose time of supply is on or after 01.04.2019 as per prescribed formula is given in notification may be used for payment of above GST liability.

7. Important things to be kept in mind:

80% Inputs and input services shall be received from registered persons till the date of completion certificate or first occupation whichever is earlier. If it falls short then at the end of the financial year builder has to pay RCM @18%.
The builder has to maintain the project-wise account of inward supplies and calculate RCM accordingly.
The input Tax credit has to be shown as ineligible credit in FORM 3B.
80% limit has to be calculated financial year wise. Excess in a financial year cannot be adjusted against a shortfall of next Year.

8. New GST rates notified for some services related to Real estate sector:

S.No.	Category	GST Rate	Conditions 1. The carpet area of the affordable residential apartments is not less than 50% of the total carpet area of all the apartments in the project. 2. The value of the Apartment shall be the value of a similar apartment booked nearest to the date of signing of the contract. It should not exceed 45 lacs. 3. If Conditions are not met then the builder has to pay the difference amount.
a.	Composite Supply of works contract for affordable residential apartments on which GST @ 1% (Simply Construction Contractor)	12%
a.	a. Non-Affordable	12%
b.	Any Goods other than Cement and capital Goods by an unregistered person to a promoter(Say Builder) for construction of the project on which tax is payable by the promoter as the recipient of goods u/s 9(4)	18%
c.	Cement	28%
d.	Transfer of development rights or FSI (including Additional FSI) for construction of a project by the promoter	18%
e.	Long term lease of land (30 years or more) by any person against consideration in the form of an upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter	18%
f.	Capital Goods	As per Regular Rates of item purchased.

Note:

Service by way of transfer of Development rights(TDR) or FSI (including Additional FSI) or Upfront amount for leasehold rights on or after 01.04.2019 for construction of residential apartments by the promoter in a project intended for sale before an occupation certificate is an exempt subject to certain conditions.
For Mixed projects, the exemption will be restricted to the proportionate carpet area of a residential project subject to certain conditions.
GST to be paid by the promoter under RCM on the value attributable to the residential apartments remaining unbooked as on the date of issuance of completion certificate. The formula is as under: (Lower of below two:-
- GST payable on TDR or FSI * Unbooked carpet area of residential apartment / Total carpet area of the residential apartments in the project
- 5%/1% (Non-Affordable/Affordable) on the value of residential apartments remained unbooked.
- Time of supply will be the issuance of completion certificate/first occupation

9. Valuation of Supply of service by way of TDR/FSI:

Value of Supply of service by way of transfer of development rights or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.

10. Valuation of Un-booked Residential or commercial apartments:

On the date of issue of completion certificate or first occupation as the case may be shall be deemed to be equal to the value of similar apartments charged by the nearest to the date of issuance of completion certificate or first occupation as the case may be.

11. How to calculate eligible ITC in ongoing projects:

For this Notification has given detailed annexure.

12. What are the other important points?

When % of invoicing is more than the % of completion and difference between % invoicing and % of completion of construction is more than 25% the value of invoicing shall be deemed to be % of completion plus 25%.
Where the value of invoices issued on or before 31.03.2019 exceeds the consideration actually received on or prior to 31.03.2019 by more than 25% then the value of such invoices shall be deemed to be actual consideration received plus 25%.
Where the value of procurement of inputs and input services prior to 01.04.2019 exceeds the value of consumption of the inputs and input services used in the construction completed as on 31.03.2019 by more than 25% then Actual consumption plus 25% shall be deemed to be the value of procurement
The jurisdictional commissioner Or any other officer authorized in this regard may fix the eligible ITC based on actual per unit consumption based on the documents certified by CA/CWA submitted by the builder in this regard applying accepted principles of accounting.

Remarks:

Those builders who want to continue in the old scheme (which is generally more lucrative) should do extensive working regarding their ITC, Completion stage, Charging of GST from a customer, Revision of rates, etc.