GST & Its Impact on Real Estate CA. Pulak Saha Agenda Impact - - PowerPoint PPT Presentation

GST & Its Impact on Real Estate

• CA. Pulak Saha

Agenda

Section 1 Impact of 33rd and 34th GST Council Meeting Section 2 Anti-profiteering – An update Section 3 Recent Advance Rulings

2 February 2020 GST & Its Impact on Real Estate

Section Impact of 33rd and 34th GST Council meeting

Impact of 33rd and 34th GST Council meeting

Introduction GST rates for Real Estate – Composition Scheme Non-composition rates New exemption entries Supplies taxable under reverse charge Time of supply Input Tax Credit

February 2020 GST & Its Impact on Real Estate 4

Introduction

Snapshot of amendments post GST Council meetings

February 2020 GST & Its Impact on Real Estate 5

Reverse charge liability for discharging GST on TDR /FSI/ Long Term Lease Premium The Government issued seven (7) notifications for implementing GST Council’s decisions in its 33rd and 34th meetings

GST rates applicable for new and on-going projects under a Composition scheme Assigning time of supply for supply of TDR / FSI/Long Term Lease and construction services New mechanism for calculating ITC reversal for construction projects Exemption for supply of TDR/FSI/Long Term Lease Premium for residential projects

GST rates applicable for on-going projects - option to stay under regular / erstwhile scheme

Introduction

New concepts

February 2020 6

Residential Real Estate Project

• r “RREP” is a REP where carpet

area of commercial apartments < 15% of total carpet area of the project “Promoter” definition under GST law akin to definition under RERA Includes a person who constructs or causes to construct; or develops land into a project for selling to other person “Apartment booked on or before 31 March, 2019”

• time of supply for construction on
• r before 31 March, 2019; and
• at least 1 installment received

before 31 March, 2019; and

• allotment or sale agreement

issued before 31 March, 2019 “On-going project”

• commencement certificate issued

before 31 March 2019; and

• construction started before 31

March 2019; and

• completion certificate not issued

before 31 March, 2019; and

• apartments partly or wholly

booked before 31 March, 2019 Real Estate Project or “REP” means the following for the purpose

• f sale:
• development of a building;
• conversion of existing building

into apartments;

• development of land into plots

“Affordable residential apartment”

• where carpet area < 60 m2 in

metropolitan cities*; or < 90 m2 in other cities / towns; and

• gross amount charged < INR 45

lakhs; or

• apartment in on-going project

under schemes notified earlier

GST & Its Impact on Real Estate

* Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with respective geographical limits prescribed by an order issued by the Central or State Government

GST Rates for Real Estate – Composition Scheme

New Composition scheme –Effective rates*

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RREP 1% 5% Affordable residential General Residential Commercial apartments / property 5% REP Affordable residential 1% General residential 5% 12% Commercial property

* 1/3 abatement for value of land would be available to determine the effective rate

• Procurement of 80% of inputs and inputs services (except TDR, long term lease premium, non-GST

supplies) needs to be from registered suppliers

• GST payable @18% under RCM on the shortfall in fulfilling 80% threshold (cement is taxed @28%)
• Procurements attracting RCM (legal services, overseas procurements, etc.) will be treated as

procurements from registered persons

• 80% threshold is required to be fulfilled on a project-wise basis for each financial year and reconciled

by 30 June of the following year

• GST liability is to be paid in cash only, tax however to be collected from the buyer
• GST on purchase of capital goods from unregistered suppliers payable under RCM at the applicable

rates

Non Composition Rates

GST rate on outward supplies

February 2020 GST & Its Impact on Real Estate 8

Construction services 12%* Commercial apartments General Residential Apartment in on-going affordable housing projects 8%*

* 1/3 abatement for value of land would be available to determine the effective rate

• “Option” to continue under 8% or 12% for residential projects was to be exercised by 10 May

2019 on project-wise basis, otherwise composition rates of 1% or 5% would be applicable

• Invoices were supposed to be issued as per the option exercised
• Option to be exercised in Form annexed as Annexure IV to the Notification No. 3/2019
• ITC available

Non Composition Rates

Concessional GST rate on inward supplies

February 2020 GST & Its Impact on Real Estate 9

Particulars GST rate Supply of works contract service to a promoter providing construction of affordable residential apartment and discharging GST @ 1% for ongoing as well as new projects 12% (subject to conditions) Conditions – 1. Carpet area of affordable residential apartments should not be less than 50% of the total carpet area of all apartments in the project; 2. Value for affordable residential apartments should not exceed Rs. 45 lakhs 3. Value stated above to be determined based on value of similar apartments booked nearest to date of signing contract for supply of works contract service However, if at the end of the project, the carpet area is found to be less than 50% of the total carpet area of all apartments in the project, then differential GST to be paid by the promoter under RCM. (Differential GST = GST rate otherwise applicable – 12%)

New Exemption Entries

Supply of TDR/FSI/Long Term Lease

February 2020 GST & Its Impact on Real Estate 10

Supply* of TDR/ FSI/ upfront payment for Long Term Lease

• f 30 years or more

Exemption on supply attributable to area of residential apartment GST to be paid under RCM on value of unsold apartments on date of issuance of OC/CC GST liability - 1%- Affordable 5%- Others Residential Apartment Commercial projects No exemption - GST to be paid under RCM @18% No exemption from GST on periodic payment for Long Term Lease No exemption on supply attributable to post OC/CC sales GST to be discharged by the promoter *Applicable for supplies post 1 April 2019

Supplies Taxable Under Reverse Charge

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1 Service supplied by any person by way of TDR or FSI for construction of a project by a promoter Builder to pay applicable GST under Reverse Charge 2 Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount and/or periodic rent for construction of a project by a promoter. 3 Excess procurement (above 20%) of inputs and input services from unregistered person Builder to pay GST under Reverse Charge @ 18% 4 Procurement of cement from unregistered person Builder to pay GST under Reverse Charge @ 28% 5 Procurement of capital goods from unregistered person by promoter who has availed benefit of 1%/5% GST rate Builder to pay applicable GST under Reverse Charge

Time of supply - TDR/FSI/Upfront long term lease premium

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Registered person Developer Development Rights Construction service Time of supply of both services is the date of transfer

• f possession or right in constructed complex by

conveyance deed or similar instruments (Notification No 04/2018 – Central Tax (Rate) dated 25.01.2018)

Supply till 31 March, 2019 Supply after 1 April, 2019

Any person Promoter Development Rights / FSI/long term lease for residential projects Construction service or cash or upfront premium Time of supply is the date of issuance of completion certificate or first occupation, whichever is earlier Is Landowner liable to pay GST on supply of Development Rights where time of supply is on / before 31 March 2019? If the supplier of TDR was unregistered and time of supply is post 01.04.2019,whether the Developer be liable to pay GST on supply of TDR under RCM and what would be the applicable GST rate?

Input Tax Credit

February 2020 GST & Its Impact on Real Estate 13

Transition for On-going projects opting for the new tax rate

• On-going

projects

• pting

for new tax rates shall transition ITC as per mechanism provided in Notification

• Transition would be on a

pro-rata basis taking into consideration credit in proportion to booking of the flat and invoicing done for the booked flat, subject to a few safeguards The new scheme provides for reversal of ITC on the following parameters

• Entire ITC availed in

respect of the project from 01.07.2017 (incl. transition credit) to be computed

• Total carpet area of the

project to be bifurcated into commercial and residential

• Total eligible ITC would be

proportionately allowed

• nly to the extent of the tax

paid on apartments taxed at full rate. Total eligible ITC would be computed based

• n

the following parameters as on 31-03-2019

• Percentage of booking
• Percentage of invoicing
• Percentage of

consideration received

• Percentage of completion
• f construction

Section Anti-Profiteering

Anti-profiteering

February 2020 GST & Its Impact on Real Estate 15

• Under GST, the government has introduced anti-profiteering provisions in order to ensure that

any benefit accruing to the taxpayers on account of GST is passed on to customers by way of commensurate reduction in prices.

• The anti-profiteering measures require the relevant administrative authority to examine a GST

registered entity’s prices to ensure that benefit on account of:  input tax credits availed by that entity; and  reduction in rate of indirect tax has been passed on to its customers by way of commensurate reduction in the price of goods and services supplied by that entity.

• In case of failure in such compliances, National Anti-Profiteering Authority (NAA) has been set

up which consists of the following: The Director General of Anti-Profiteering Authority (DGAP) under CBIC, Central Standing Committee (Delhi) and State Level screening committee constituted at each State by respective State Governments.

Anti-profiteering

February 2020 GST & Its Impact on Real Estate 16

• Various cases registered by NAA in the case of Heeranandani Realtors Private Limited, Lodha

Developers, Sun Infra Services Private Limited, Eldeco Infrastructure and Properties Limited, Salarpuria Real Estate Private Limited, etc.

• The methodology of the computation of the benefit by NAA has been challenged. The grounds

raised by assessees in various cases are as follows:  Method adopted by the DGAP to compute the profiteered amount cold not be applied to the construction industry since there was no synchronization between the accrual of ITC and the instalments to be realized from the buyers  Total credit accruing with respect to the possession demand has been taken on the calculation of the post GST ratio however, there was no corresponding taxable turnover since the possession demand was not raised. Accordingly the ratio should be revised.  A portion of post GST ITC might be required to be reversed as soon as the CC was received in terms with Schedule III of the CGST Act 2017 read with Section 17(3) of the CGST Act 2017  assessee would be eligible to claim the input credit when his suppliers would have deposited the GST which they charged from him and in case they have not deposited the GST his ITC would be disallowed

Anti-profiteering

February 2020 GST & Its Impact on Real Estate 17

• The matter in the case of Heeranandani Realtors Private Limited was referred to Hon’ble Madras

HC and the Hon’ble Madras HC has granted a stay in the instant matter. The matter is pending before the Hon’ble High Court for further hearing.

• It may be noted that the approach followed in Heeranandani Realtors has been followed in the

case of Sun Infra, Eldeco, Salarpuria Real Estate, etc. In all the above orders, the net benefit on account of GST was derived covering the following two aspects:  Increase in the ratio of input tax credit to the taxable turnover from pre GST regime to GST

• regime. This differential ratio was applied to the taxable turnover of the GST regime to

derive at the benefit amount;  The reduction in net effective tax rate on outward supplies made by the Company in the GST regime when compared to pre GST regime.

Section Advance Rulings and Judgments

Advance Rulings and Judgments

February 2020 GST & Its Impact on Real Estate 19

Applicant: Bengal Peerless Housing Development Company Limited (WB AAR)

Question before Advance Ruling authorities: Whether the supply of services like preferential location service, which includes services of floor rise and directional advantage, constitutes a composite supply with construction service as the principal supply, and if so, whether abatement is applicable on the entire value of the composite supply Held: Hon’ble WB AAR has held that the services of construction of a dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit and right to use car parking space and common areas and facilities, constitutes a composite supply, with construction service as the principal supply, and thus taxable accordingly. Thus, the entire supply would be taxable at the rate applicable to construction service.

Advance Rulings and Judgments

February 2020 GST & Its Impact on Real Estate 20

Applicant: Vilas Chandanmal Gandhi (Maharashtra AAR)

Question before Advance Ruling authorities: Whether GST is leviable on sale of Transferable Development Rights ('TDR')/ Floor Space Index ('FSI') received as consideration for surrendering the joint rights in land in terms of Development Control Regulations and granted in light of the article of agreement dated 18 December 2017 entered between the Applicant and Pune Municipal Corporation ('PMC') read with Development Control Regulations? Held: The GST on transfer of development rights or FSI (including additional FSI) is payable at the rate of 18% (9% + 9%) with ITC under SI. No. 16, item (iii) of Notification No. 11/2017 – Central Tax (Rate) dated 28-06-2017 (heading 9972). There is no exemption on TDR or FSI (Addl. FSI) for construction of commercial apartments. Therefore, GST shall be payable on TDR or FSI (including additional FSI) or both used in respect of (i) carpet area of commercial apartment and (ii) unbooked residential apartments as on the date of issuance of Completion Certificate or first occupation of the project for the purpose of formula.

Advance Rulings and Judgments

February 2020 GST & Its Impact on Real Estate 21

Applicant: Maarq Spaces Private Limited (Karnataka AAR)

Question before Advance Ruling authorities: Whether the activity of development and sale of land attract tax under GST. If yes, for the purpose

• f taxable value, whether provision of Rule 31 of the CGST Rules, 2017 can be made applicable in

ascertaining the value of land and supply of service? Held: Maharashtra AAR observed that Applicant undertakes development of plots and also constructs road, lays sanitary pipes and drains, etc. and bifurcates the land into sites and amenities, hence, core competence and activity carried out is of land development and not sale of land. AAR felt that applicant do not acquire any right over the property which would qualify them to be considered as sellers of the property in the capacity of an owner, and that landowners have engaged the applicant to develop the land in accordance with the approvals. Accordingly AAR held that the activities envisaged under the JDA between the applicant and the landowners amount to supply of service, liable to be taxed under GST while rejecting applicant’s plea that it is primarily engaged in sale of land, which is not liable to be taxed.

Advance Rulings and Judgments

February 2020 GST & Its Impact on Real Estate 22

Safari Retreats Private Limited – Odisha HC

Issue Order Outcome Whether ITC accumulated on the construction of shopping mall can be utilized for the payment of GST liability arising

• n the letting out of the units of

the shopping mall? (Safari Retreats Private Limited) Writ filed before the High Court

• f Odisha - Cuttack

The High Court is of the view that when GST is payable on the rental income arising out of the investment on which GST is paid, then ITC is admissible.

• ITC can be availed on the

goods or services used for the construction of commercial property as long as GST is being discharged on the lease rentals.

• As the ITC chain is not

breaking owing to the GST liable on the letting out services, ITC can be utilized.

Questions ?

23 February 2020 GST & Its Impact on Real Estate

Thank You

pulak.saha@pwc.com