GST Implications for Real Estate
GST Implications for Real Estate
The Indian real estate sector has complex Goods and Services Tax (GST) implications based on project and apartment type. This article summarizes GST rates and definitions for key real estate terms.
Residential Apartments face 5% GST (without input tax credit) if the following conditions are met:
- Declared for residential use to Regulatory Authority
- Part of a Residential Real Estate Project (RREP) where commercial apartment carpet area is <=15% of total
Commercial Apartments face 18% GST (with input tax credit)
Affordable Housing Units up to 60 sq.mts (645 sq.ft) in metro cities or 90 sq.mts (969 sq.ft) in other cities, with value <= 45 Lakhs face 1% GST (without input tax credit).
Real Estate Projects (REPs) refer to development of apartments for sale. Gross value of an apartment includes construction cost, land cost, preferential location charges, development charges, parking charges, etc.
When can resolution be sought under DRP?
The entry of international businesses into the Indian market not only expands the avenues for tax collection in the country but also underscores the need for a robust Revenue department capable of effectively addressing growing disputes. The Finance Bill of 2009 introduced an extra avenue to aid in the resolution of transfer pricing matters through the establishment of the Dispute Resolution Panel (DRP).
The DRP serves as an Alternative Dispute Resolution (ADR) mechanism specifically designed for addressing disputes pertaining to Transfer Pricing in International Transactions. Its establishment aims to ensure the prompt and equitable resolution of cases in a fair and just manner.
GST Rate for Builders for the supply of Residential or commercial projects:
| Project Type | Rate of tax | ITC |
|---|---|---|
| Affordable Residential | 1.5%*2/3=1% | No |
| Non-Affordable Residential | 7.5%*2/3=5% | No |
| Pure Commercial | 18%*2/3=12% | Available |
# 1/3rd reduced for Land value.
GST Rate for Builders for the supply of Residential and commercial projects:
| Project type | REP where Commercial Apartment is < =15% of Total Carpet Area | EP where Commercial Apartment is >15% of Total Carpet Area | ||
|---|---|---|---|---|
| Rate of tax | ITC | Rate of tax | ITC | |
| Affordable Residential | 1.5%*2/3=1% | No | 1.5%*2/3=1% | No |
| Non-Affordable Residential | 7.5%*2/3=5% | No | 7.5%*2/3=5% | No |
| Pure Commercial | 7.5%*2/3=5% | No | 18%*2/3=12% | Available |
Conditions under New GST Rate for the Builders:
Do not avail of Input tax credit and the same report is ineligible in GSTR 3B
ïķ GST has to be paid on the transfer of Development Rights under RCM by the
Builder
ïķ At least 80% of Procurement should be bought from registered vendors other than
TDR, long-term lease premium, salami, FSI, electricity, high-speed diesel, motor
spirit, and natural gas.
ïķ GST has to be paid @18% on purchases from an unregistered person when the
purchases fall less than 80% rule other than cement. For cement GST rate @ is 28%.
GST on Joint Development Agreement(JDA):
JDA for Builder Perspective:
Area Sharing Agreement
| Nature of project | Rate of tax | Conditions |
|---|---|---|
| Sold units before completion certificate [CC] / Occupancy Certificate [OC]. Sale of Flats â GST levy | 7.5%*2/3=5% (Forward Charge) | Amount to be collected from Customer. No ITC |
| Unsold Units after completion certificate [CC] / Occupancy Certificate [OC]. Sale of Immovable property, No GST levy. However, the same portion of amount to be paid for the Transfer of Development Rights | 7.5%*2/3=5% (Reverse Charge) | It should be paid by the Builder from his own pocket. No ITC |
JDA for Landowner Perspective:
| Nature of project | Rate of tax | Conditions |
|---|---|---|
| Sold units before completion certificate [CC] / Occupancy Certificate [OC]. Sale of Flats â GST levy | 7.5%*2/3=5% (Forward Charge) | Amount to be collected from Customer. ITC Available |
| Unsold Units after completion certificate [CC] / Occupancy Certificate [OC]. Sale of Immovable property, No GST levy. However, the same portion of amount to be paid for the TDRâs | NIL GST Levy | Treated as Immovable Property ITC to be reversed since the services are exempted |
| Development Rights which are to be paid by the Builder | NIL GST Levy | Exempted for Builder ITC is to be reversed since the services are exempted |
