GST on under-construction flats slashed to 5%, affordable housing to 1%

GST on under-construction flats slashed

As per GST law, construction of a complex, building, civil structure intended for sale to a buyer is considered a service (As per Schedule II of CGST Act, 2017) and liable for GST – if any consideration is received before issuance of completion certificate. However, GST is not applicable if the whole of the consideration for a property is paid after issuance of completion certificate by a competent authority or after its first occupancy, whichever is earlier.

So, if a property is purchased in a secondary transaction from an owner, then GST would not be applicable as the payment is being made after issuance of completion certificate or first occupancy. Please refer Table below for better understanding ;

Type of Transaction And ITC availability to Builder	Applicability of GST	Rate of Tax
Ready to Move in Properties (Provided completion certificates have been issued) ITC : Not Available	Not Applicable as per Schedule III of CGST Act, 2017	NA
On Resale Properties ITC : Not Available	Not Applicable as payment is made after first occupancy	NA
On Under Construction Properties purchased under Affordable Housing Scheme ITC :  Available	As per Schedule II of CGST Act, 2017	Rate is 12%. However, effective rate is 8% (after deducting the 1/3rd percentage towards the cost of undivided share of land) (Please refer Note 1 as below)
On Under Construction Properties purchased under other than Affordable Housing Scheme ITC :  Available	As per Schedule II of CGST Act, 2017	Rate is 18%. However, effective rate is 12% (after deducting the 1/3rd percentage towards the cost of undivided share of land) (Please refer Note 1 as below)
Sale or Purchase of Land ITC : Not Available	Not Applicable as per Schedule III of CGST Act, 2017	NA

Lets now understand the various parties that could possibly be involved in a Real estate transaction;

Any real estate transaction starts with Builder acquiring land for constructing a building (Residential/Commercial) upon it. Land is either purchased from the Landowner, or the Builder enters in to “Joint Development Agreement” (JDA, ) with the Landowner. Please refer Table below for better understanding ;

Note 1

Press note on recommendations of the 33rd GST Council meeting held on 24th February, 2019

GST Rate Effective date: The new rate shall become applicable from 1st of April 2019.		Definition of Affordable Housing Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).
The benefit of reduced rate should be passed on to the buyer as per section 171 of CGST Act, 2017 and provisions of Anti -Profiteering will come into play.
GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment;	GST shall be levied at effective GST rate of 1% without ITC on affordable housing properties	·     Value up to Rs.45Lakhs both for Metro and Non-Metro cities ·   residential house/flat of carpet area of up to 90 sqm in non-metropolitan cities/towns ·   residential house/flat of carpet area of up to 60 sqm in metropolitan cities/towns

Tax on Development Rights (TDR)

Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable.

To conclude, The Residential Property on which GST is not payable , shall not be eligible for the exemption on TDR i.e. Landowner shall be required to charge GST from the Builder.

However, the same would be given effect to through Gazette notifications/ circulars which alone shall have force of law.

Thank you !

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