FAQs on the Real Estate Sector under GST

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 has been issued.

In recent policy, the GST Council has cut the tax rates to 5% from 12% on premium houses and, 1% from 8% for affordable houses. However, ITC benefits will not be available under the new tax rate policy.

FAQs on real estate sector as per CBIC Release

1. What are the new GST rates on the construction of residential apartments?

A) 1% - New affordable housing projects

          Ongoing affordable housing projects opting for new rates.

B) 5% - Ongoing other than affordable housing projects

             New other than affordable housing projects 

             projects with commercial space <15% of total carpet area

Conditions to be satisfied for availing the above rates:

(i) ITC: ITC cannot be claimed.

(ii) Purchase of inputs from registered persons: At Least 80% of the total value of inputs and input services should be purchased from registered suppliers.

The promoter should pay GST @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).

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 meter for metropolitan cities;
• Carpet area is up to 90 square meter for cities and towns other than metropolitan cities and;
• The gross amount charged by the builder is not more than Rs.45 Lacs.

4. What is an ongoing project?

Ongoing Project means a Project where development is going on and for which Occupancy Certificate or Completion Certificate has not been issued but excludes such Projects which fulfill any of the following criteria on the date of notification of these rules.

A project is said to be an ongoing project if t satisfies all the following conditions:

• Commencement certificate (CC) in respect of the project has been issued on or before 31stMarch 2019  and it is certified by any of the following that construction has been started on or before 31st March 2019 –

a) A Chartered Engineer; or

b) A licensed surveyor of the respective local body.

• Where CC is not required to be issued by a competent authority, it is certified by either a Chartered Engineer or licensed surveyor that construction of the project has started on or before 31stMarch 2019;
• Completion certificate has not been issued or the first occupation has not been taken place on or before 31stMarch 2019;
• Apartments being constructed under the project have been partly or wholly booked on or before 31stMarch 2019.

5. What are the criteria for certifying that the construction of a project has started by 31st March 2019?

Construction of a project shall be considered to have been started on or before 31st March 2019, if the earthwork for site preparation for the project has been completed, and excavation for the foundation has started on or before the 31st March 2019.

6. Does a promoter or a builder have the option to pay tax at old rates of 8% & 12% with ITC?

A promoter shall purchase at least 80% of the value of input and input services, from registered suppliers. For calculating this threshold, the value of services by way of grant of development rights, long term lease of land, floor space index, or the value of electricity, high-speed diesel, motor spirit and natural gas used in the construction of residential apartments in a project shall be excluded.

7. 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?

With effect from 1st April 2019, effective rate of GST, after deduction of the value of land or undivided share of land, on the construction of commercial apartments (shops, godowns, offices, etc.) by promoter in real estate project are as under:

• Construction of commercial apartments in a Residential Real Estate Project (RREP), which commences on or after 1st April 2019 or in an ongoing project in respect of which the promoter has opted for new rates effective from 1st April 2019 – 5% without ITC on the total consideration

• Construction of commercial apartments in a Real Estate Project (REP) other than Residential Real Estate Project (RREP) or in an ongoing project in respect of which the promoter has opted for old rates – 12% with ITC on the total consideration

8. What are the GST rates on TDR, FSI and long term lease of land?

TDR or FSI or long term lease of land used for the construction of commercial apartments shall attract GST of 18%. They shall be applicable to supply of TDR or FSI or long term lease of land used in the new projects where new rate of 1% or 5% is applicable.

9. Who is liable to pay GST on TDR and floor space index?

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.

10. Is the option to pay tax at old rates of 12% or 8% (with ITC) is 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 Central or State Government. For projects which commence on or after 1st April 2019, the promoters need to mandatorily pay tax at new rates.

11. Can a promoter revise an invoice as per section 34 of the CGST Act by way of issuance of debit/credit notes?

In case of 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.

12. 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%

13. How to compute tax adjustment of a credit note where a unit was booked prior to 1st April 2019 but canceled at a later date?

Suppose the buyer paid a gross booking amount of Rs.10 lacs before 1st April 2019. The developer paid GST of Rs.1.2 lakhs (12% of Rs.10 lacs) 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 are before Sept 2019.