Implication on Real Estate & other issues in GST (Amendments)

Notifications and other material NN No. Amended Sections Gist 03/2019-CT(Rate) ,dt. 29-03-2019 N No. 11/2017 - CT (Rate) 9(1), (3),(4), 11(1), 15(5) , 16(1) & 148 New rates for Real estate sector, ITC calculation 04/2019-CT(Rate) ,dt. 29-03-2019 N No. 12/2017 - CT (Rate) Section 11(1) Exemption to DR+FSI and LT Lease for residential apartments 05/2019-CT(Rate) ,dt. 29-03-2019 N No. 13/2017 - CT (Rate) Section 9(3) RCM services: DR+FSI and LT Lease (upfront + periodic) 06/2019-CT(Rate) ,dt. 29-03-2019 NA Section 148 Time of supply for DR+FSI, Upfront LT Lease and Construction service to land owner agst DR+FSI 07/2019-CT(Rate) ,dt. 29-03-2019 Section 9(4) notify certain services to be taxed under RCM under section 9(4) of CGST Act as recommended by  08/2019-CT(Rate) ,dt. 29-03-2019 N No. 1/2017- CT (Rate) Section 9(1) and 15(5) notify CGST rate of certain goods as recommended by Goods and Services Tax Council for real estate sector. 16/2019-CT ,dt. 29-03-2019 CGST Rules Section 164 Input tax credit and others with forms Order No. 4/2019 – CT ROD Section 172 Credit attribution on area basis of the area of the construction

Highlights of New Scheme Effective GST rate: 5% for non – affordable housing and 1% in case of affordable housing. Affordable Residential Apartment: means residential apartments with carpet area not exceeding 60 sqm in metropolitan cities or 90 sqm in other places gross consideration <= Rs. 45 lakhs

Highlights of New Scheme ITC not available Availed ITC cannot be used for payment of such GST liability. Optional for the existing projects and mandatory for the new projects. Option to be exercised by filing the prescribed form on or before 10th May 2019

Rate Change or Business Change!!

Impact areas on project in Transition and New Input tax credit (‘ITC’) Cost of projects Anti-profiteering Procurement contracts Contracts/ agreements with customers IT/ERP systems etc. Project wise analysis

Impact on Sale Price of the project

Exclusive GST Contract Particulars Value GST Total Before 01.04.2019 Cost per sq. ft. of unit 1,200/- 96/- (8%) Selling Rate per sq. ft. of unit 2,000/- 160/- (8%) 2,160/- From 01.04.2019 1296/- 20/- (1%) 2,020/- OR 2,116/-?

Inclusive GST Contract Particulars Value GST Total Before 01.04.2019 Cost per sq. ft. of unit 1,200/- 96/- (8%) Selling Rate per sq. ft. of unit 2,160/- 160/- (8%) From 01.04.2019 1296/- 2,160/- or 2020/-or 2,116/- 20/- (1%)

Concept of Implied Contract

Implied Contract Section 9 of Contract Act: Promises, express and implied In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. Southern Foundries (1926) Ltd v Shirlaw 'Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain an officious by-stander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, 'Oh, of course'. Section 171 CGST Act: Anti-profiteering measure Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

Real Estate Transactions

Real Estate Transactions 1. Sale of land 2. Supply of rights arising out of land 3. Supply of real estate before completion 4. Supply of real estate after completion

Construction Service

Definitions Project Real Estate Project: Real Estate Project or a Residential Real Estate Project Real Estate Project: the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto; Residential Real Estate Project: REP in which the carpet area of the commercial apartments is not more than 15 per cent of the total carpet area of all the apartments in the REP;

Affordable Residential Apartment a) Residential apartment in a project which commences on or after 1st April, 2019, or is an ongoing project Not exercised option of entry (ie) or (if) Carpet area <=60 sqmtr in metropolitan cities or <=90 sqmtr in cities or towns other than metropolitan cities Gross amount charged is <= 45 lakhs rupees b) An apartment being constructed in an ongoing project under any of the existing schemes, where the option of (ie) and (if) has not been exercised

GST: 4 metro + Bengaluru, Hyderabad, NCR 80IBA v/s GST Carpet Area IT : 30 & 60 sqmt GST: 60 & 90 sqmt Metro Cities IT: 4 metro GST: 4 metro + Bengaluru, Hyderabad, NCR

Ongoing Project & Project which commences on or after 1st April, 2019 Commencement certificate issued & certified by any of the authorities specified that construction of the project has started Completion certificate has not been issued or first occupation of the project Apartments being constructed under the project have been, partly or wholly, booked on or before the 31st March, 2019

Residential and Commercial Apartment Residential: an apartment intended for residential use as declared to the RERA Commercial: Other than residential

Commencement certificate The commencement certificate or the building permit or the construction permit, by whatever name called issued by the competent authority to allow or permit the promoter to begin development works on an immovable property, as per the sanctioned plan.

Identify Project!!

How many projects are there? Identify Project!! Multistorey Ltd. has a plot of land admeasuring 6000 sqmt. It had planned to construct 2 towers on it in 2 phases. Phase 1, Construction has been started in January 2018 for first tower, which is under construction as of now. Phase 2, Construction of Second tower will start in January 2020. How many projects are there? Completion certificate/occupancy certificate for first tower, then second tower will be no gst?

Rates

Real Estate Project Rate Summary Commercial RREP 7.5% Other REP 18% Residential New Project Affordable RREP & REP 1.5% Other than affordable RREP & REP 7.5% On-going Project Option 12% Default 1.5% Other REP Option 18% Default 7.5%

Conditions for New Rates

Conditions for New Rates Tax to be paid through cash ledger Attribution of ITC (Annexure I and Annexure II) Pay ITC attributable to time of supply of construction which is on or after 1st April, 2019 Promoter shall maintain project wise account of inward supplies from RD and URD ITC not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B [Row No. 4 (D)(2)].

Condition of 80% Procurement

Conditions for New Rates 80% of value of input and input services used in supplying the service shall be received from RD only 80% excludes services by way of grant of dev. rights, L.T. lease of land or FSI, electricity, high speed diesel, motor spirit, natural gas] inputs and input services on which tax is paid on RCM basis shall be deemed to have been purchased from RD

Conditions for New Rates: Pay under RCM Cement 28% GST under RCM where cement is received from an URD [Calculate and pay every month] Other Inputs and input services 18% GST under RCM on shortfall from 80% value [Calculate and pay after end of FY before next quarter end (Prescribed Form)] Capital Goods (RCM Notification) Applicable GST under RCM on capital goods

Illustration: 1

Illustration 2

Developer & Land owner Condition

Major Types of Development Agreements Revenue Sharing Area Sharing Area Transfer

Developer Condition w.e.f. 01.04.2019 Developer shall pay tax on supply of construction of apartments to the landowner Tax Total amount charged for similar apartments in the project from the independent buyers nearest to the date of Joint Development Agreement less 1/3rd for land value. Value Date of issuance of completion certificate or on its first occupation. TOS Before 01.04.2019 : Date on which Developer transfers possession or the right in the constructed complex, building or civil structure, to the person supplying the development rights by entering into a conveyance deed or similar instrument (for example allotment letter). Notification No. 4/2018-Central Tax (Rate)

Land owner Condition w.e.f. 01.04.2019 Landowner shall be eligible for ITC of taxes charged by the developer ITC Further supplies such apartments before issuance of completion certificate or first occupation, whichever is earlier Time limit Pays tax amount >= Amount of tax charged from him Tax Amt. Value as per agreement!!!, Rate option!!!! and TOS as per agreement for Land owner promoter

Rate of tax for Contractors

Composite supply of works contract Affordable residential apartments commences from 01.04.2019 or an ongoing project other than (ie) or (if): 12% rate Carpet area of affordable residential apartments>= 50% of Total carpet area of all apartments Value for affordable residential apartment: Value of similar apartments booked nearest to the date of signing of the contract for supply of such service shall be adopted If finally carpet area of affordable residential apartments less than 50%: Promoter to pay differential tax (18%-12%)

Development Rights/ LT Lease

Are Development Rights taxable? ‘Land’ includes rights in or over land, benefits to arise out of land. Adverse Advance Ruling of Sri Patrick Bernardinz D'sa22 Transfer of development rights are already subject to stamp duty

RCM for Promoter [Sec. 9(3)/5(3)] 1. Transfer of development rights or FSI for construction of a project by a promoter. 2. LT lease of land (30 yrs or more) for upfront amount and/or periodic rent for construction of a project by a promoter. Residential: Before 31.03.2019, for the development rights transferred, landowner to pay GST at 18%: 9972 Commercial: before and after at 18%.

Exemption for DR/LT Lease Transfer of DR/Upfront amount for LT Lease on or after 01.04.2019 for construction of residential apartments Amount of exemption: Proportion of carpet area of residential & commercial apartments No exemption in respect of apartments remain un-booked on the date of issuance of completion certificate/first occupation RCM amount not to exceed 1%/5% for said un-booked apartments Rate for commercial apartments in RREP? 18% but should be 5% as the apartments are 5%!!!!!!!!!

REVERSAL in case of Sale of Units post Completion

Removal of Difficulty Order Now, attribution of Credit b/w taxable and exempt supply based on area of construction. Earlier, as per Section 17 of the CGST Act i.e. yearly ITC to be attributed.

Case Studies

Questions Whether all the apartments in a project has to satisfy the condition of affordable housing in order to avail the concessional effective rate of 1% on the affordable residential apartment? Whether the Landlord be eligible to avail input tax credit on the construction services which are taxable at the effective of rate of 1% and 5% in an on-going project? Whether a sub-contractor or any other person who is only providing construction services and is not involved in sale can claim the above concessional rates of tax?

Gross Amount Charged Mr. C (builder) sells a residential apartment to Mr. D(before obtaining CC) at Rs. 40 lakhs (excluding GST). He charges an additional amount towards preferential location charges. Comment on GST rate if: Case 1: Preferential charges constitute Rs. 2.75 lakhs Case 2: Preferential charges constitute Rs.8 lakhs

Computation of Reversal

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