by Anmol jain

1. CA Students Conference – Hyderabad
Critical issues in Real
Estate Sector

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Real Estate In GST
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Notification 3 – 8 / 2019
dated 29.03.2019
Parallel notifications In
CGST,IGST & UTGST
Notification no 16/2019
central tax dated
29.03.2019 amended
CGST Rules, 2017
Rates Changed for
development of residential
property
No change for developer
of commercial
properties, rate for
construction contractor &
Government contractor
FAQ on Real estate

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The unusual bond - Indirect taxation and Real Estate
• GST has worked out to be a shining sun for many sectors
• GST continuously showering its positive rays on various sectors such as Pharma and Chemical.
Mixed reactions from industries
•
• Real Estate involves the supply of goods, services as well as immovable property.
• Carving out the taxable event and carrying out the valuation thereof has always been debatable.
• Misery is further increased when one considers the extent of the input tax credit (“ITC”) which can or
cannot be availed/utilized by the said sector.
Why unusual bond?

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GST on real estate sector – 1st April 2019 New scheme
Building Material
GST (at various rates)
on inward supply
Credit not available
Credit not available
Credit not available
Professional
Services
GST @18% Land owner
Transfer or Land
Development rights –
Exempt* residential
commercial taxable
Constructed House/
Flat
GST @ 5%/1%
on 2/3rd Value of
the Property
Individuals
Construction
services
GST @ 18%
Developer
Note: option of new rate or old rate available only for
ongoing project only.
New project after 1st April 2019 should mandatorily be under
new rate only
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Important Legal provisions
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Section 2,
Sub-section 30
“composite supply” means a supply made
by a taxable person to a recipient
consisting of two or more taxable supplies
of goods or services or both, or any
combination thereof, which are naturally
bundled and supplied in conjunction with
each other in the ordinary course of
business, one of which is a principal
supply;
Illustration.— Where goods are packed
and transported with insurance, the supply
of goods, packing materials, transport and
insurance is a composite supply and
supply of goods is a principal supply;
Section 2,
Sub -section 119
“works contract” means a contract
for building, construction,
fabrication, completion, erection,
installation, fitting out,
improvement, modification, repair,
maintenance, renovation,
alteration or commissioning of any
immovable property wherein
transfer of property in goods
(whether as goods or in some
other form) is involved in the
execution of such contract;
Section 7,
Sub-section 1
Clause (a)
All forms of supply of goods or services or
both such as
1) Sale
2) Transfer
3) Barter
4) Exchange
5) License
6) Rental
7) Lease or disposal made or agreed to
be made for a consideration by a person
in the course or furtherance of business

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Important Legal provisions
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Schedule II, Clause
2,
Sub- clause (a) (b)
Land and Building
(a) any lease, tenancy,
easement, license to
occupy land is a supply of
services;
(b) any lease or letting out of the
building including a commercial,
industrial or residential complex for
business or commerce, either wholly
or partly, is a supply of services.
Schedule II, Clause
5,
Sub-clause (b)
Renting of immovable property
Supply of services, namely :- Construction of a complex,
building, civil structure or a part thereof, including a complex
or building intended for sale to a buyer, wholly or partly,
except where the entire consideration has been received
after issuance of completion certificate, where required, by
the competent authority or after its first occupation,
whichever is earlier.
Schedule II clause 6
(a)
works contract as
defined in clause (119)
of section 2
Schedule III clause 5
Sale of land and,
subject to clause (b)
of paragraph 5 of
Schedule II, sale of
building

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Issues in real estate sectors
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To further analyse critical issues in the said sector under GST, we should look into the taxation structure
from majorly three perspectives:
Developer
promoter
Sub-
contractor
Land owner

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From the perspective of developer promoter:
Valuation - Residential Real Estate Project
• Currently, Residential Real Estate Project (‘RREP’) shall mean a Real Estate Project (‘REP’) in which the carpet
area of the commercial apartments is not more than 15 percent of the total carpet area of all the apartments in
the REP.
• Issue : Whether non-saleable areas such as society office, club house, etc. as mentioned above are to be
taken into consideration for determining 15% for deciding whether the project is RREP or not?
• View : At present, there is no specific guidelines for the same in the law. In most of the cases the developers are
including the area of society office, club house for the aforesaid calculation. However, the issue stands debatable
and litigative.
Valuation - Affordable residential apartment
• Affordable residential apartment is an apartment having carpet < or = 60 square meter in metropolitan cities or 90
square meter in cities or towns other than metropolitan cities and gross amount charged < or = 45 lakhs rupees.

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From the perspective of developer promoter:
• Issue : whether the following charges should be included for calculating threshold of INR 45 lakhs?
• Stamp Duty;
• Amenity charges;
• Legal charges etc.
• View : In my view, all the aforesaid charges which are mandatory to be incurred such as stamp duty etc., may be
included to determine the threshold of INR 45 lakhs. Other ancillary charges may be excluded.
• However, no specific guideline are provided in GST rules for the same, which keep this as a grey area.
Valuation - Affordable residential apartment

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From the perspective of contractor:
Tax Rate of 12%
• Only composite supply of works contract supplied by way of construction, erection, commissioning, installation,
completion, etc. of only affordable residential apartments are covered at 12% bracket.
• Issue : services in respect of other apartments shall continue to be taxed at 18%. Additionally, various
conditions are attached for tax to be discharged at lower rate of 18%.
• View : Uniform tax rate may be introduced by the government to make tax compliance easier, which
would also reduce the prices.
Valuation - Affordable residential apartment

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From the perspective of Land owner:
Eligibility of ITC
• In case the land owner receives apartments against the supply of development rights or Floor Space Index.
• Land owner promoter shall be eligible for credit of taxes paid by him, provided the land owner promoter further
supplies such apartments
• Issue : Can the land owner adopt new scheme, if the developer has adopted old scheme?
• What treatment would be required in respect of ITC if the supply is “not in the course or furtherance of
business”?
• View : The aforesaid issues need clarifications from the authorities before it is too late.
• There are different stands taken up by the assesses on the aforesaid issues, which would definitely lead to
litigation.
Valuation - Affordable residential apartment

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Other issues
Transaction
 Anti-profiteering
• Section 171 of GST Act provide for commensurate reduction of prices.
• The rules in this regard as to the quantum of reduction, manner of reduction is not yet notified.
• Possibility of different practices being adopted in the Industry cannot be ruled out.
• The aforesaid different practices shall lead to litigation.
 Pricing
• No significant reduction in property prices by the developer.
• Developers are still in process of determining the benefit arising on account of GST.

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Purported Advantages by GST council versus reality
Transaction
 The buyer of house gets a fair price and affordable housing gets very attractive with GST @ 1%.
Actual cost by way of ITC becoming cost not factored while stating the “attractiveness”.
 Interest of the buyer/ consumer gets protected; ITC benefits not being passed to them shall not be an issue.
Assumes anti-profiteering on a large scale. May or may not be true.
 Tax structure and tax compliance becomes simpler for builders.
The notification mentions various conditions on every step. Not that easy.
 Unutilized ITC, which used to become cost at the end of the project gets removed and should lead to better pricing.
Still in the end it will be cost.

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