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Impact of New GST Regime (Without Input Tax Credit) on Real Estate Sector

  1. What is the definition 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 Bengalaru, Chennai, Delhi NCR (Limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (Whole MMR).

  1. What is the Rate of GST on the Housing Sector:
    • @ 1% without ITC on Affordable Housing units (0.50% SGST and 0.50% CGST) as per above criteria
    • @ 1% on affordable housing projects under the existing Central and State Government Housing scheme presently eligible for concessional rate of 8% GST (after 1/3 rd Land Abatement)
    • @5% Without ITC on Non-Affordable Housing Units (2.50%+2.50%)
  1. What is the GST Rate on Commercial Properties:

@ 12% with ITC (No Change) (18% -1/3 rd deduction for Land)  (Except 15% commercial space covered in Affordable Residential projects- on such commercial property 1% or 5% will be applicable)

  1. How much area of commercial use is allowed:

15% of the total carpet area of all residential  apartments (Residential Real Estate Project-RREP)

  1. What is the GST rate on TDR/JDA/Long term Lease premium, FSI

@ 18% but Exempted if used for residential property on which GST is payable. However, GST needs to be paid under RCM by the builder for the flats unsold as on the date of obtaining a completion certificate.

  1. What will be the GST rate for Existing ongoing Projects:

If a builder has exercised the option to pay the tax in new regime then new rate shall be applicable for installments payable on or after 01.04.2019.

  1. What are the conditions for new rates:
    • The input Tax credit shall not be available
    • 80% of inputs and input services shall be purchased from registered persons.
    • On shortfall from 80% tax shall be paid by the builder @18% on RCM basis.
    • Tax on cement purchased from unregistered person shall be paid @ 28% under RCM.
    • Tax on capital Goods purchased from unregistered person shall be at applicable rates of that particular item.
    • Capital Goods, TDR/JDA, FSI, Long term Lease premium will not be counted for 80 %.
    • How 80% will be calculated is not specified (Monthly/Yearly/Project wise ). Maybe notified in Notification.
    • Purchases made from Composition dealers will also be counted in 80% purchase from a registered dealer.
  1. What are the transitional formula approved by the GST council:
    • Based on percentage booking of flats and percentage invoicing ITC eligibility is determined.
    • For a mixed project, ITC shall be allowed on Pro Rata Basis in proportion to carpet Area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 01.04.2019) to the total carpet area of the project.
    • Detailed Guidelines are expected to come in the notification
  1. What will be the Treatment of TDR/FSI/Long Term Lease premium :
  • For New Projects:
    • Supply of TDR, FSI, Long term Lease premium of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them.
    • If flats are sold after the issue of completion certificate then 1% of the value of affordable houses and 5% of value in case of Other then affordable houses have to be paid.
    • The liability to pay tax has been shifted from Landowner to Builder under the RCM.
    • The time of liability in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.
  1. Liability in case of JDA:

     The liability to pay tax on construction of houses given to landowner in a JDA is also shifted to date of completion.

  1. New ITC rules:

     New ITC rules will be notified shortly for calculation of ITC eligibility and reversal thereof.

  1. Exercising of option for existing projects:

A one time option will be given to builders to pay tax at old rates which have to be exercised within the time frame. If the option will not be exercised then new rates will be applied. The date has not been notified.

Ongoing projects mean where construction and actual bookings both have started before 01.04.2019 and not completed on 31.03.2019.

There is no option for projects starting from 01.04.2019.

  1. Where it is beneficial to exercise the new option:

For this calculation has to be made project wise. Mainly Cost of Land, Cost of construction and stage of construction, Payment Received/Instalments due is relevant.

  1. For the same project having different towers whether different options available:

It is not clarified yet but it seems that it will be applicable for the entire project. However, if construction permission and completion certificate is obtained phase wise then each phase may be treated as a separate project. We should wait for notification.

  1. Whether Two Separate agreements can be made for land and Construction and charging GST @ 1% or 5 % on only Construction price:

In case of flat, it is difficult because the land is part of total consideration and in case of Bungalows/ Row House where land is separately registered, it is not possible because only construction agreement will be covered under works contract and GST @ 18% will be applicable on such construction cost. Though there will be no GST on the land sale value.  So Industrial plotting developers /Other types of plot developers have to pay @ 18% on construction price.

  1. Whether 1% or 5% can be recovered from the client:

The above scheme is not covered as a composition  scheme but these are regular rates. In GST act composition dealers can not charge GST separately from customers. But there are no such restrictions in this scheme.

  1. What will be the rate for Sea Facing/ River View/garden facing/preferential location/infrastructure/development charges collected by the builder:

All these charges are part of composite supply along with flat. So GST @ 1% or 5% will be applicable on total value inclusive of above charges. The builder should take note that a limit of 45 lakhs is inclusive of all these charges. However, expenses incurred by builder in pure agent capacity like electricity deposit, purchase of stamp papers will not be covered in value.

  1. GST rate on flats sold after obtaining completion certificate:

There will be no GST if the flat/shop is sold after obtaining a completion certificate.

  1. What will be the rate of construction services provided to the landowner:

It will be covered under construction services and GST @ 18% will be charged by the builder to the landowner. However, notification is awaited for more clarification.GST on the above construction services will be due on the date of completion.

  1. Whether the builder can revise the rates:

In our opinion, as the input tax credit will not be available, the cost of the builders may increase in some projects. So, the rates may be revised. There are no such restrictions.

  1. Anti-profiteering:

Anti-profiteering may be applicable. The builder should prepare a chart for benefit calculation arising due to rate reduction and restriction on ITC.

Impact on Income Tax liability:

The Input Tax Credit(ITC) which has to lapse in existing projects will cost for the builder and net profit and income tax liability will be reduced.

There are different definitions for affordable housing as per Income Tax Act, GST Act, and subsidy purpose. So, the builder has to take care of all definitions.

Date of completion is very important and may affect income tax liability. The deemed rent is also chargeable to tax after two years from the date of completion. For landowner (Individual/HUF), there will capital gains tax liability on the date of completion.

Concluding remarks:

  1. Though the government wants to give benefit to lower cost houses, under a new scheme, effective GST will be more by 2 %.
  1. On the premium projects where land value is high, effective GST will be less by 2%.
  1. The builder should take fast decision to opt for a new/old scheme and accordingly has to try to collect a maximum amount from customers before 01.04.2019.

Note: After issuing of notification by Govt, we will issue the second part of the FAQs.

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