GST On Real Estate – Building A New Phase?
A crane stands at an unfinished residential apartment project in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

GST On Real Estate – Building A New Phase?


The Goods and Services Tax has been a house full of challenges for the real estate sector. Although the new regime did try to simplify the earlier complexity of multiple taxes, there are various issues still faced by developers as well as contractors.

To recap, the effective GST rate applicable from July 1, 2017, on construction of complex services (where property is sold before issuance of occupancy certificate) was 12 percent (18 percent, less one-third deduction of land) and 8 percent for specific affordable housing projects, with input tax credit.

With effect from April 1, 2019, new concessional GST rates have been introduced for the real estate sector – at 1 percent for affordable housing and 5 percent for others, without input tax credit.

At first glance, though the rates seem to be lower than the earlier rates, the devil is in the detail where the input tax cost would become a cost for the developer and directly affect the price.

Further, developers were given an option to choose between the earlier and new rates for ongoing projects and such option had to be exercised by May 20, 2019. Various other changes have been notified as well including the taxability of transfer of development rights.

Due to the complexity of changes involved, the Central Board of Indirect Taxes and Customs has issued two FAQ documents (on May 7 and May 14) on amendments made in order to provide clarity on various issues represented by the industry. The key aspects clarified in the latest FAQ have been discussed in this article.

The Tussle Between Occupancy Certificate And Completion Certificate

The option to choose between the new and old rates has been provided for ongoing projects to developers. One of the conditions to qualify as an ongoing project is that completion certificate should not have been issued or first occupation should not have taken place.

Practically, in most cases, the developers were getting only an occupation certificate from the authorities and hence, there was a doubt whether in cases where the occupation certificate has been received (but a completion certificate is pending), the same will still be referred as an ongoing project or not.

In line with the clarifications issued in the service tax regime, the CBIC has clarified that for projects where occupation certificate has been received, the earlier rates would continue to apply for pending demands. Hence, for such projects, the earlier rates would apply even if certain cost is still pending to be incurred.

The ‘RERA’ Linkage

In the first FAQ issued, it was clarified that the government is linking taxability of each project to what has been registered under RERA.

It has now been further clarified that apartments shall be considered as commercial or residential as declared under RERA. 

Hence, it appears that the government is linking declarations under both legislations to ensure uniformity.

Clarifications For Affordable Housing

For affordable housing, a 1 percent GST rate has been proposed. Affordable housing project has been defined as an apartment where carpet area does not exceed 60 square meters (90 sqm for non-metropolitan cities) and where gross amount charges are not more than Rs 45 lakh.

For computing such monetary limit, the amendment provided that the same would include any other amount charged by the promoter including preferential location charges, parking etc. It has been clarified in the FAQ now that all charges including amenity charges, legal charges and others charged from the buyer shall be included to determine such limit. But the same will not include stamp duty payable to the authorities, maintenance charges/deposits for maintenance etc.

Further, it has also been clarified that for apartments which did not meet criteria for affordable housing in earlier scheme but meet the same in new scheme would also be eligible for the 1 percent concessional rate.

Demystifying Taxability Of TDR

The latest FAQ throws light on various issues regarding taxability of TDR.

This is one of the most common transactions in the real estate industry where a landowner provides TDR to a developer to construct property for a consideration (either monetary or in form of property). This has been an area of ambiguity and dispute under GST as well as the erstwhile service tax regime.

The amendment notifications stipulate that tax on TDR would be exempt to the extent made for construction of residential property sold before occupancy certificate and completion certificate. Detailed provisions for valuation and time of supply for the same were also provided.

Such a change had added to the pending ambiguities of the real estate industry on TDR. The FAQ seeks to provide the following clarifications for the same.

  • Implementation: It has been clarified that the new provisions would apply only on TDR transferred after April 1, 2019. Hence, any TDR transactions before such date would continue to be governed by earlier provisions, which were ambiguous.
  • Applicability: GST would be payable on TDR when provided for commercial property as well as to the extent of residential property sold post occupancy certificate and completion certificate.
  • Value: It has been clarified again that value of TDR shall be equal to the amount charged by the developer from independent buyers nearest to the date when TDR is transferred, less value of land, if any.
  • Rate of tax: GST of 18 percent is applicable on TDR, provided that the same will not exceed 5 percent / 1 percent of value of residential apartments remaining un-booked as on date of occupancy certificate / completion certificate.
  • Who will pay tax: GST on TDR is always payable by the developer under reverse charge.

Also read: GST On Real Estate: A Real Roller Coaster

Other Issues Clarified

Few of the key aspects clarified include:

  • Carpet area should be considered as basis for any bifurcation between residential and commercial portion, including for requirement for 80 percent procurement from registered dealers.
  • No input tax credit can be claimed for discharging liability in case of a new scheme – credit, if it can be used against any other tax liability.
  • Credit reversal (for common credits) will not be required for ongoing projects which opt for a new scheme – This is because the transitional credit would already have been reversed as per formula prescribed.

To conclude, these clarifications were timely as they were released just before the last date to exercise the option by a developer. However, there are still certain issues that need clarity. One of such key issue is, what would be the treatment of other charges collected, such as preferential location charges? That is, whether the same would be at a concessional rate or not for segments other than affordable housing? Further, the complexity and ambiguity regarding the taxability of TDR may lead to different positions being adopted by different players.

It will be interesting to see how customers react to options availed by the developers and how such issues are addressed. Further, owing to the complexity involved, both industry as well as the department would need some time to analyse the implications of such amendments in further detail.

Pratik Jain is Partner and Indirect Tax Leader at PwC India. With inputs from Nandita Nawalakha, Associate Director, PwC India.

The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.

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