Practical Guide on new scheme of taxation for real estate under GST

The transactions in the real estate sector have their own peculiarities and thereby one has always felt the need for having a separate set of provisions that would be more specific to this sector rather than the general provisions that would be applicable to any other sector. This need was felt right from the sales tax ( later VAT) as well as in service tax regime. 

However, with the series of changes that have been made effective from 1^st April, 2019 it can be seen that the step in this direction has been taken although it may not be in line with the GST principles.

This book has attempted to analyse the various changes that have been made to the existing provisions and the new provisions that have been introduced along with the impact. Further, the discussion of the legal provisions has been summarised by way of illustrations followed by the open issues that require further deliberation and decision making. Also a model has been provided that can be used by the industry to costs involved in continuing with the existing scheme vis-a-vis the new scheme, in order to facilitate the decision making regarding the option to chose for the rate of tax in case of ongoing projects.

We have made an attempt to express our views on various issues based on our past indirect tax experience. The law is still in a nascent stage more clarity would emerge as our understanding deepens. Now that this booklet is placed in your hands, we request you to kindly give your valuable feedback, which would improve the quality of this booklet and make it more enriching to the readers in future editions. (Feedback can be sent to: [email protected], [email protected] or [email protected]) 

We acknowledge the dedicated efforts of CA Shilpi Jain, CA Radhika V, CA B Hemanth Kumar, CA Monika Motta, CA Manish Sachdeva, CA Mayank Jain and other staff of Hiregange & Associates in helping us for the timely completion of this booklet.

Also a special thanks to CA Madhukar N Hiregange and CA Rajesh Kumar T R for vetting this booklet.

BRIEF PROFILE OF THE AUTHORS

CA Sudhir V.S. ([email protected], +91 99081 13787)

Qualified as a Charted Accountant in 2006, since then been a partner with CA Madhukar N  Hiregange. Done his Entrepreneurship Development Program at Indian Institute of Management – Ahmedabad (IIM –A). He has contributed various articles for professional institutes like Institute of Charted Accountants of India (ICAI), Institute of Cost Accountants of India and Trade Journal, Service Tax Review & Manupatra. He has presented papers at various branches of ICAI, ICSI& ICWAI. Master trainer for the ICAI, New Delhi and faculty in National academy of Customs, Excise and Narcotics (NACEN), which trains the Departmental officers. He is also the joint author of couple of service tax books. He is a member and co-chairman of Indirect Taxes Committee of FTAPCCI for 2017, a member of the Regional Advisory Committee on GST, Govt. of Telangana and a past member of Regional Advisory Committee of Central Excise & Service Department, Hyderabad. and 

Roopa Nayak: ([email protected], +91 93427 28247)

Qualified in 2008, she is a Chartered Accountant by profession, partner with Hiregange & Associates. She is into consulting and advisory wing of the Hiregange & Associates. Has advised client across all industries on various issues under Goods and Service Tax (GST) and in other indirect taxes+ providing GST retainer ship and implementation, and handholding support.

She has Co-authored several books like Central Excise Made Simple (e-book & KSCAA publication), the Background Materials of Certificate Course on Indirect Taxes and Two/Three Days Workshop on Enabling Service Tax Practice and First Cut Background Material on GST. She has also co-authored “Students Handbook on Indirect Taxes” and Handbook on CST.

 Currently working on a sectoral GST book on real estate sector. She is an active contributor of articles online to ca club/linked in for 7 years and to various professional institutes such as to ICAI. She is an active speaker in seminars organised by branches and chapters of ICAI and study circles all over.

Ashish Chaudhary: ([email protected], +91 85109 50400) 

Chartered accountant qualified in November 2009 having meritorious academic background with All India 27th Rank in CA Final, 12th Rank in CA PE II and 22nd rank in CS Final. He has been practicing in indirect tax since then and presently partner at Hiregange & Associates,  leading NCR and international practice of the firm.  

Prolific speaker addressed more than 150 seminars on indirect taxes across various educational, trade and professional bodies including certification course and other programs of ICAI. Had contributed as special invitee in the Indirect Tax Committee of ICAI.  Has co-authored books on Annual Return and Audit under GST, Service Tax and contributed to background material of ICAI on GST and UAE VAT.

He has been contributing articles on various contemporary issues under Service Tax and GST.

Advisors to many multinational and corporate clients on Indirect Tax matter across all the sectors and industries

EXECUTIVE SUMMARY OF NEW SCHEME OF TAXATION

1. GST is applicable at the effective rate of 5% for non – affordable housing and 1% in case of affordable housing. Affordable Residential Apartment means residential apartments with carpet area not exceeding 60 sqm in metropolitan cities or 90 sqm in other places for which gross consideration does not exceeds Rs. 45 lakhs. 
2. Input Tax shall not be eligible and the available ITC (accumulated net of reversal or from other business in the same registration) also cannot be used for payment of such GST liability. Further, the ITC on the purchases needs to be disclosed in Form GSTR- 3B as ineligible credit. This scheme would be optional for the existing projects and mandatory for the new projects commencing from 1^st April, 2019. 
3. In case the developer wishes to continue with the existing scheme, he has to opt for the same by filing the prescribed form on or before 10th May 2019. However the invoice that needs to be issued from 1st April 2019 onwards has to contain the rate as per the option exercised.
4. A project shall mean a Residential Real Estate Project (RREP) in which carpet area of commercial premise is not more than 15%, as per RERA. In case the carpet area of commercial premise in a residential project is not more than 15% of the total carpet area of the project, then it shall be treated as residential project and eligible for concessional GST rate of 5% on the commercial premise also. The total input tax availed for the project (including the transitional credit) needs to be restricted to residential flats sold where the time of supply is prior to 31st March 2019. In case the ITC has been availed in excess of the above calculation, then such excess amount needs to be paid in cash. For this, assessee has an option to seek instalments not exceeding 24 months with applicable interest. In case the ITC has been availed less than the above calculation, then such ITC can be availed and used for other GST liabilities. [ Other on-going projects]
5. There is a further condition for opting for such scheme that 80% of the inputs and input services shall be received by the registered suppliers only (includes tax paid under reverse charge mechanism). In case of any shortfall GST needs to be paid at the 18% under reverse charge by the builder by 30th June of the next financial year for a particular financial year. However, all purchases of cement from unregistered persons shall be liable under reverse charge basis to be paid monthly at the rate of 28% and in case of all capital goods purchased from un-registered persons, would be liable under reverse charge at the applicable rate of tax.
6. Project-wise account of inward supplies needs to be maintained for supplies from registered suppliers and unregistered suppliers. Such details are to be electronically submitted in the portal before 30^th of June of subsequent year in the prescribed form. [For multiple projects this may again be a challenge for smaller builders]
7. With respect to JDA (relating residential real estate projects i.e. including projects where the commercial area is less than 15% of the total project area) entered prior to 1^st April, 2019, Developer needs to pay GST on the built-up area handed over to Landowner (value shall be equal to the flats sold [registered] by developer to their customer nearest to joint development agreement) at the rate of 7.5% with 1/3rd deduction (effective rate 5%) for flats in case of nonaffordable housing and 1.5% with 1/3rd deduction (effective rate 1%) for flats in case of affordable housing, at the time of obtaining completion certificate. 
8. The above liability would arise on the date of issuance of completion certificate or first occupation, whichever is earlier. GST so charged shall be eligible as ITC in the hands of the Land owner in case the same flats are sold prior to issuance of completion certificate. Further, the GST w.r.t. the development rights given to the Developer for such JDAs would be exempt to the extent of the units sold by the Developer from his share prior to completion certificate or first occupation, whichever is earlier, and to the extent of the units remaining unsold as on such date, the Developer would be liable under reverse charge mechanism. 
9. The JDA (relating other projects) entered on or after 1^st April, 2019 would also be liable under reverse charge mechanism to the extent of the unsold inventory on project completion and such liability would arise on project completion only. Thereby, attempting to ease cash flows for this sector.
10. Further, the existing ITC provisions have been amended to ensure that the ongoing projects would be required to reverse credit availed during the project execution to the extent of the units sold after completion certificate or first occupation, whichever is earlier.

Note: It is very important for invoicing from 1^st April 2019 that the option of continuing under the earlier scheme or going for the new scheme is decided. Once decided whether intimation to be given by 10^th May 2019 is also very important. 

INDEX

1. ANALYSIS OF NEW SCHEME OF TAXATION FOR REAL ESTATE ........................................................... 9
2. REVERSAL OF INPUT TAX CREDIT .................................................................................................... 21
3. TAXABILITY OF JOINT DEVELOPMENT AGREEMENTS, TDR, FSI AND LONG TERM LEASE .................. 30
4. ILLUSTRATIONS ............................................................................................................................. 34
5. Frequently Asked Questions .......................................................................................................... 39
   1. Transition Provisions ............................................................................................................ 39
   2. Levy, Tax Rates and Exemption ............................................................................................. 54

5. 4. Input tax credit ..................................................................................................................... 64
   5. Reverse Charge .................................................................................................................... 72
   6. Time of Supply ..................................................................................................................... 77
6. OPEN ISSUES...................................................................................................................................... 79

8. BIBLIOGRAPHY ............................................................................................................................... 95
9. RELEVANT PROVISIONS OF ACTS & RULES ......................................................................................... 96
   1. THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 ............................................................ 96
   2. THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017 .................................................... 106
   3. Central Goods and Services Tax Rules, 2017 ....................................................................... 107
10. Relevant entries of the rate notifications ....................................................................................... 117
    1. Notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 ......................................... 117
    2. Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 .......................................... 131
    3. Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 ......................................... 135
    4. Notification No. 07/2019-Central Tax (Rate) dated 29.03.2019 ......................................... 135

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1. 5. Notification no. 08/2017-Integrated Tax (Rate) dated 28.06.2017 .................................... 136
   6. Notification No.09/2017-Integrated Tax (Rate) dated 28.06.2017 ..................................... 153
   7. Notification No. 10/2017-Integrated Tax(Rate) dated 28.06.2017 ..................................... 157
   8. Notification No. 07/2019-Integrated Tax (Rate) dated 29.03.2019 .................................... 157

1. ANALYSIS OF NEW SCHEME OF TAXATION FOR REAL ESTATE

GST on real estate has been a contentious issue especially with real estate sector in India facing a challenging time over the last few years. Several representations were made to the Government for further simplification and reduction of rates, especially for residential real estate sector, in the hope that the same would bolster demand.

The Government also has been contemplating revising the tax structure under GST for the real estate sector, more so for the residential sector, as the incidence of tax on the end customer is perceived to be very high coupled with the fact that it becomes very difficult in this industry to track compliance with the provisions of anti-profiteering. Further, it was stated that the scheme would address the slow-down in this sector and boost the residential segment.

In this regard the GST Council had made certain recommendations in its 33^rd and 34^th meeting, after which a series of notifications have been issued on 29.03.2019 which would be effective from 01.04.2019. Below is a summary of the new scheme that is applicable from 01.04.2019 with the impact for the assessees.

Applicability of the new scheme

As per the new scheme introduced by way of the Central Tax rate notifications No. 3/2019, 4/2019, 5/2019, 6/2019, 7/2019 & 8/2019, all dated 29.03.2019, and similar notifications under the Integrated GST and State GST laws, the following are the apartments that would be eligible for the new rates: 

• Apartments constructed by a promoter in a project that are intended for sale to a buyer, wholly or partly, where any part of the consideration is received prior to issuance of completion certificate (CC), where required by the competent authority, or first occupation, whichever is earlier (hereinafter referred to as the cut-off date), which commences on or after 01.04.2019, or 
• Apartments constructed by a promoter in a project that are are intended for sale to a buyer, wholly or partly, where any part of the consideration is received prior to issuance of completion certificate (CC), where required by the competent authority, or first occupation, whichever is earlier (hereinafter referred to as the cut-off date), which is an ongoing project

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in respect of which the promoter has not exercised the option of paying tax at the rates applicable prior to 01.04.2019(i.e. 12%) The rate of GST would be as follows:

* - With 1/3^rd deduction for value of land, the effective rate of tax would be 1%, 5%, 5% and 12%, respectively.

RREP - Residential Real Estate Project 

REP - Real Estate Project

To summarise from the above it is clear that for all the projects, which are starting on or after 1^st April 2019, the promoter has to mandatorily pay tax as per new scheme of taxation. For the ongoing projects, option is available for promoter to choose either the new scheme or continue at the as per the old scheme. 

The following would be the meaning of the terms used under the new scheme of taxation:

1. Promoter as per explanation 4(xvii) of notification No. 3/2019 ibid, the definition would be as per section 2(zk) of the Real Estate (Regulation and Development) Act, 2016 (hereinafter referred to as ‘RERA’) which defines the term promoter as:
   1. a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or
   2. a person who develops the land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
   3. any development authority or any other public body in respect of allottees of—
      • Buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or

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• • • Plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or
  • An apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or
  • Any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or
  • Such other person who constructs any building or apartment for sale to the general public. Explanation—For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sell apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder;”

Comment: From the reading of the above provision, it is clear that the person who does the construction and also the person who causes the construction would be considered as promoter. Further the explanation also makes it clear that the person selling the apartment and the person constructing the apartments are both considered as promoter and hence the landowner who sells the apartment but would not do the construction, could also be considered as promoter for the purpose of RERA and also this new scheme of taxation.  From the reading another question that arises is whether the contractor doing the construction for the developer can also be considered as promoter and thereby 7.5% of tax can be paid instead of 18% would be discussed in open issues portion of this booklet. 

2. Apartment:- As per paragraph 4 (xiv) of notification No. 3/2019 ibid, “apartment” shall have the same meaning as assigned to it section 2(e) of RERA wherein it is defined as follows:-

“whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying on any

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business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified”

Comment: As per above, any self-contained unit would be an apartment and that self-contained unit could be flat or row houses or a villa and such unit would be considered as apartments for the new taxation scheme. Further even commercial unit would be considered as an apartment, thereby the new scheme of taxation would apply even to commercial projects such as office spaces, shopping malls, shops etc. in the RREP (less than 15% commercial apartments in real estate project).   

3. Project:- As per paragraph 4 (xv) of notification No. 3/2019 ibid, “Project” shall mean a Real Estate Project (REP) or Residential Real Estate Project (RREP).

4. Real Estate Project (REP) as per explanation 4(xviii) of notification No. 3/2019 ibid, the definition would be as per section 2(zn) of the RERA which defines the term REP as:
   • The development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or 
   • The development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and
   • Also includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto.

Comment: Thereby all real estate projects including the development of plots would be considered as REP. However, on examination of the rates it can be seen that the new rates would be applicable only w.r.t. the construction of the apartments. Hence, the development of plots and other transaction in plots would not be covered by this new scheme and would continue to be governed by the rates as applicable prior to 01.04.2019 only.

5. Residential Real Estate Project (RREP) as per explanation 4(xix) of notification No. 3/2019 ibid, the definition would be a REP in which the carpet area of the commercial apartments in not more than 15% of the total carpet area of all the apartments in the REP.

Thereby, the following projects would be considered as RREP.

1. 1. Projects with only residential apartments 

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1. 2. Projects with residential apartments and commercial apartments where the carpet area of the commercial apartments is not more than 15% of the total carpet area of the project.

Comment: In case the commercial area is more than 15% of the total carpet area, then the project would not be a RREP and hence the new scheme of taxation for such commercial area would not apply. However the residential area of such project would be still be eligible for the new scheme of taxation.   

6. Carpet area as per explanation 4(xxvi) of notification No. 3/2019 ibid, the definition would be as per section 2(k) of the RERA which defines the term carpet area as:

• The net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but
• Includes the area covered by the internal partition walls of the apartment.

Explanation.— For the purpose of this clause, the expression "exclusive balcony or verandah area" means the area of the balcony or verandah, as the case may be, which is appurtenant to the net usable floor area of an apartment, meant for the exclusive use of the allottee; and "exclusive open terrace area" means the area of open terrace which is appurtenant to the net usable floor area of an apartment, meant for the exclusive use of the allottee;

g. Affordable residential apartment has been defined to extend the scope to include apartments having carpet area of 60 sqm/90 sqm and where consideration does not exceed Rs. 45 lakhs. The definition is as per explanation 4(xvi) of notification No. 3/2019 ibid, shall mean:  

a. A residential apartment in a project which commences on or after 01.04.2019, or in an ongoing project:

• In respect of which the promoter has not exercised the option to pay tax on construction of apartments at the rates as applicable on such services prior to 01.04.2019,  
• Having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities, and  
• For which the gross amount charged is not more than Rs.45 lakhs.

For the purpose of this clause, -

i. Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR)

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with their respective geographical limits prescribed by an order issued by the Central or

State Government in this regard; ii. Gross amount shall be the sum total of; - 

• Consideration charged for the services under affordable residential apartments by a promoter in RREP or in ongoing project @ the rate of 1.5%. 
• Amount charged for the transfer of land or undivided share of land, as the case may be including by way of lease or sub lease; and 
• Any other amount charged by the promoter from the buyer of the apartment including preferential location charges, development charges, parking charges, common facility charges etc.; 

b. An apartment being constructed in an ongoing project, in respect of which the promoter has not exercised option to pay tax on construction of apartments at the rates applicable prior to 01.04.2019, under any of the schemes mentioned below (services as contained in certain entries in sub clause (iv), (v) and (vi) of S. No. 3 of the rate notification No. 11/2017 – CGST Rate)  Ø Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana. 

• • “ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban).
  • “Beneficiary led individual house construction / enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana.
  • “Economically Weaker Section (EWS) houses” constructed under the Affordable Housing in partnership by State or Union Territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban).
  • “Houses constructed or acquired under the Credit Linked Subsidy Scheme for

Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group1 (MlG-1)/ Middle Income Group-2 (MlG-2)” under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban).

• • A single residential unit otherwise than as a part of a residential complex;
  • Low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation,

Government of India;

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• • Low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under-
    1. 1. The “Affordable Housing in Partnership” component of the Housing for

All (Urban) Mission/Pradhan Mantri Awas Yojana; 

1. 1. 1. 2. Any housing scheme of a State Government;
      2. Low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March, 2017.
      3. Works contract service provided to the Central Government, State Government, Union Territory, [a local authority, a Governmental Authority or a Government Entity] by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Act.

Comment: From the above it can be seen that the apartments having carpet area of 60 sqm/90 sqm would be considered as affordable houses if sold for not more than Rs. 45 lakhs. In addition to this the apartments sold, which are part of the schemes mentioned above, irrespective of the sale consideration and in some cases the area involved, would also fall under the same category. In this regard, if the promoter opts for the:

1. New scheme for the project having such apartments, the effective rate of tax would be 1%, or
2. Existing scheme for the projects as contained in S. No. 3 of notification No. 11/2017 ibid, then the effective tax liability would be @ 8%.

8. Ongoing project:

Notification No.3/2019 ibid defines ongoing project as a project which meets all the following conditions, namely- 

1. 1. commencement certificate in respect of the project, where required to be issued by the competent authority, has been issued before 01.04.2019, and it is certified by any of the following that construction of the project has started before 01.04.2019:- 

(i) an architect registered with the Council of Architecture constituted under the Architects Act,

1972 (20 of 1972); or 

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1. 2. a chartered engineer registered with the Institution of Engineers (India); or                 
   3. a licensed surveyor of the respective local body of the city or town or village or development or planning authority.

1. 2. where commencement certificate in respect of the project, is not required to be issued by the competent authority, it is certified by any of the authorities specified in sub clause (a) above that construction of the project has started before 01.04.2019;
   3. completion certificate has not been issued or first occupation of the project has not taken place before 01.042019;
   4. apartments being constructed under the project have been, partly or wholly, booked on or before the 31st March, 2019.

Explanation- For the purpose of sub- clause (a) and (b) above, construction of a project shall be considered to have started before 01.04.2019, if the earthwork for site preparation for the project has been completed and excavation for foundation has started before the 01.04.2019.

1. Apartment booked on or before the 31st March, 2019

Notification No.3/2019 ibid defines an apartment booked on or before the 31st March, 2019 as an apartment which meets all the following three conditions, namely- 

1. 1. part of supply of construction of which has time of supply on or before the 31st March, 2019 and 
   2. at least one instalment has been credited to the bank account of the registered person on or before the 31st March, 2019 and 
   3. an allotment letter or sale agreement or any other similar document evidencing booking of the apartment has been issued on or before the 31st March, 2019;

10. Commencement certificate:- As per paragraph 4 (xxi) of notification No. 3/2019 ibid, means the commencement certificate or the building permit or the construction permit, by whatever name called issued by the competent authority to allow or permit the promoter to begin development works on an immovable property, as per the sanctioned plan.

Comment: In case there is no commencement certificate issued by the local authority the approval of plan would be considered as commencement certificate.

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11. Development works: -As per paragraph 4 (xxii) of notification No. 3/2019 ibid, means the external development works and internal development works on immovable property.

50. External development works: -As per paragraph 4 (xxiii) of notification No. 3/2019 ibid, includes roads and road systems landscaping, water supply, sewerage and drainage systems, electricity supply transformer, sub-station, solid waste management and disposal or any other work which may have to be executed in the periphery of, or outside, a project for its benefit, as may be provided under the local laws.

1000. Internal development works:-As per paragraph 4 (xxiv) of notification No. 3/2019 ibid, means roads, footpaths, water supply, sewers, drains, parks, tree planting, street lighting, provision for community buildings and for treatment and disposal of sewage and sullage water, solid waste management and disposal, water conservation, energy management, fire protection and fire safety requirements, social infrastructure such as educational health and other public amenities or any other work in a project for its benefit, as per sanctioned plans.

14. Competent authority:-As per paragraph 4 (xxv) of notification No. 3/2019 ibid, the term "competent authority” as mentioned in definition of “commencement certificate” and “residential apartment” , means the local authority or any authority created or established under any law for the time being in force by the Central Government or State Government or Union Territory Government, which exercises authority over land under its jurisdiction, and has powers to give permission for development of such immovable property.

• Real estate regulatory authority: -:- As per paragraph 4 (xxviii) of notification No. 3/2019 ibid means the Authority established under sub- section (1) of section 20 (1) of the RERA, 2016 (No. 16 of 2016) by the Central Government or State Government.

16. Residential apartment:- As per paragraph 4 (xxix) of notification No. 3/2019 ibid, is defined as  an apartment intended for residential use as declared to the Real Estate Regulatory Authority or to competent authority.

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17. Commercial apartment: -As per paragraph 4 (xxx) of notification No. 3/2019 ibid, shall mean an apartment other than a residential apartment.

18. Floor Space Index:- :- As per paragraph 4 (xxxi) of notification No. 3/2019 ibid,  shall mean the ratio of a building’s total floor area (gross floor area) to the size of the piece of land upon which it is built;

Conditions to be fulfilled for opting for the new scheme

The following conditions shall be fulfilled for persons opting for the new GST rate of 1% or 5% (effective), as applicable:

1. The liability has to be paid by way of debit to Electronic Cash ledger only. Thereby, even if any credit balance in the credit ledger exists, the same cannot be used to pay the said liability.
2. Total input tax availed for the project (including the transitional credit) needs to be restricted in the manner prescribed in Annexure I and Annexure II of notification No. 3/2019 ibid (to the extent of the apartments booked and installments due prior to 31^st March 2019 explained in the next section). If as per such computation, it seems that excess ITC is availed, such excess ITC has to be paid either by way of electronic cash/ credit ledger.
3. W.r.t the construction service provided by the Developer to the Landowner, the Developer has to pay GST under forward charge and the Landowner shall be eligible to take input tax credit (ITC) of the same, subject to the condition that: 
   1. The flats are sold independently by the Landowner to the customer before the cut-off date, and 
   2. The tax charged on such sale should not be less than the tax charged by the Developer.
4. In case of procurement of cement for the project from unregistered persons up to cut-off date, GST shall be paid under reverse charge mechanism (RCM) by the promoter at applicable rates i.e. 28% presently, in the month in which such cement is received. [Notification No. 3/2019 read with notification No. 7/2019 ibid]
5. In case of capital goods procured from unregistered persons, GST shall be paid by the promoter under RCM at the applicable rates. [Notification No. 7/2019 ibid]
6. 80% of the value of the inputs and inputs services shall be received from registered suppliers. This needs to be checked for each project separately and for each financial year (FY). However, in the FY in which the cut-off date occurs the said limit would have to be checked only for part of the FY up to the cut-off date. [Notification No. 3/2019 read with notification No. 7/2019 ibid]. However, for the purpose of this calculation the following service supplies shall not be taken into account

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6. • • Grant of development rights
     • Long terms lease of land (against upfront payment in the form of premium, salami, development charges, etc.)
     • FSI (including additional FSI)
     • Electricity,
     • High speed diesel
     • Motor spirit
     • Natural gas
7. In case of shortfall, GST needs to be paid at 18% under RCM by the promoter by 30th June of the next financial year and the details shall be submitted in the form as prescribed by such date. 
8. The developer shall maintain project wise records for account of inward supplies and report the ITC not availed in Form GSTR- 3B as ineligible credit.

From the above it can be seen that though the rate of tax has been reduced the costs would increase due to:

1. 1. ITC becomes a cost i.e. transitional reversal as per Annexure I & Annexure II ibid and future taxes which would be ineligible credit being a minimum of 80% of input services and inputs, and 100% on capital goods.
   2. Additional compliance cost by way of maintaining separate procurement/consumption records for each project even though being under the same GSTIN, RCM compliances, filing of information at the FY end or completion of project relating to the compliance with the condition of atleast 80% procurement from registered vendors, etc.

Conditions to be fulfilled for continuing with the rates as applicable prior to 01.04.2019

In case the promoter does not wish to opt for the new effective rates of 1% or 5%, as applicable, w.r.t. the ongoing projects, the following conditions shall be fulfilled:

1. The option of paying under the rates as applicable prior to 01.04.2019 shall be exercised by 10.05.2019 in the Form given in Annexure IV of notification No. 3/2019 ibid. If not opted within the time prescribed, then the new effective rates of 1% or 5%, as applicable, would be deemed to have been opted for. 
2. The invoices issued from 01.04.2019 to the date of exercising such option shall be issued as per the option finally exercised.

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Hence, even though the promoter has time to file the decision regarding the option chosen, until 10.05.2019, the same has to be decided and given effect to in the invoices issued from 01.04.2019.

Thereby, immediate analysis and decision making is the need of the hour w.r.t. the ongoing projects.

Rate of tax for construction services provided by the sub-contractor to the developer

The construction services provided by the Developer to the Landowner or by a sub-contractor to the Builder would be liable as per the rates below:

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2. REVERSAL OF INPUT TAX CREDIT

 Reversal of ITC in case of opting for new scheme 

Consequent to the changes in rates of tax coupled with the condition of ITC ineligibility, there is a need for reversal of ITC in cases where the promoter opts to pay GST at the new effective rate of 1% or 5%, as applicable, to the extent of the ITC attributable to the supplies whose time of supply (ToS) occurs after 01.04.2019, in terms of section 13(2) read with section 31(5) of the Act. This has to be identified and reversed before the due date of Sep ’19 return.  

Further, in case of the promoters of the ongoing projects who opt to pay tax at the rates applicable prior to 01.04.2019, there was lack of clarity regarding to the need for reversal of credit at the end of the project to the extent of the apartments sold after the cut-off date (i.e. post obtaining completion certificate or after its first occupancy). There have been amendments made to the rules to incorporate the provisions for requiring such reversals which would have to be followed for the credit availed from

01.7.2017 (including transition credit) till the cut-off date for such promoters.

The computations for the above reversal, as applicable, are critical for the promoter in deciding whether or not to opt for the new scheme. Hence, first this computation shall be done and the quantum of reversal shall be ascertained to identify the impact on the tax cost in case of opting for the new scheme. 

Before getting into the mechanism for reversal it is important to note that a removal of difficulty Order No. 04/2019-Central Tax, F. No. 354/32/2019-TRU, dated 29.03.2019 has been issued which provides that w.r.t. the construction of complex services as defined in para 5(b) of Schedule II to the Act, the area of construction can be considered as the basis for determining the area attributable to the taxable and exempt supplies. Prior to the issuance of this order the only basis for attributing ITC to the taxable and exempt supplies was the value of such supply.

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Reversal of ITC for persons opting for the new scheme (As per Annexure I and Annexure II of notification 3/2019 ibid) in REP / RREP

The following are the terms used with their meanings

1. Tx = ITC on inputs and input services attributable to construction of residential and commercial portion, where ToS is on or after 01.04.2019 
2. T = Total ITC availed from 01.07.2017 to 31.03.2019 including transition credit (whether or not

utilised)

3. Te = ITC attributable to construction of commercial and residential portion, where ToS is on or before 31.03.2019 and Te shall be calculated as below:
4. Tc = ITC attributable to construction of commercial portion in the REP
5. Tr = ITC attributable to construction of commercial portion in the REP where ToS is after

31.03.2019. vi.      F1 = carpet area of residential apartment / Total carpet area of residential and commercial apartment

7. F2 = Total carpet area of residential apartment booked before 01.04.2019 / Total carpet area of residential apartment
8. F3 = Value of supply for residential apartment booked before 01.04.2019 where ToS is before

01.04.2019 / Total value of supply for such apartments ix.     F4 =  1 / % completion of construction as on 31.03.2019

A. Where % of completion is not zero or where there is inventory in stock

Tx = T – Te

Where,

Te = Tc + Tr

Tc = T * carpet area of commercial apartments in project / total carpet area of commercial and residential apartments

Tr = T*F1*F2*F3*F4

In case the figures of ITC attributable exclusively to the commercial portion (T1) and ITC attributable exclusively to the residential portion of the project (T2) are available then the above formula can be applied for the remaining common credit (T3) including the ITC attributable to the residential apartments. 

i.e. Tr = (T3+T2) *F1*F2*F3*F4

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Other points

1. The amount of Tx and Te shall be computed separately for CGST/SGST/IGST.
2. If Tx is positive, ie., Te
3. If Tx is negative, Te>T, then ITC can be on the goods or services received on or after 01.04.2019 for construction of the residential portion to the extent of such difference. 
4. Until the above calculation is completed and ascertained, Tc can be ascertained and used for paying tax liability w.r.t. the commercial apartments in the project.
5. Where the % of completion is zero but ITC has been availed on goods and services for the project prior to 01.04.2019, Tr shall be calculated as discussed above except that in F4 the % of completion shall be as certified by an by an architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972) or a chartered engineer registered with the Institution of Engineers (India), which can be achieved with the input services received and inputs in stock as on 31.03.2019.

B. Where % of completion is zero as on 31.03.2019 but invoicing has been done having time of supply before 31.03.2019, and no input services or inputs have been received as on 31st March, 2019

Where

Tn = Tax paid on such inputs and input services on which ITC is available under the CGST Act, received in

2019-20 for construction of REP

Te = Tc + Tr

Tc = Tn * carpet area commercial apartments in the project / total carpet area of commercial and residential apartments in the project

Tr = Tn * F1 * F2 * F3 

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Other points

1. ITC can be on the goods or services received on or after 01.04.2019 for construction of the residential portion to the extent of amount of Te.
2. Te shall be computed for CGST, SGST and IGST.

Common points for consideration for the above 2 computations 

1. Where % of invoicing > % of completion, and % of invoicing - % of completion > 25 %; then 

% of invoicing  = % of completion + 25 % 

2. Where the value of invoices issued prior to 01.04.2019 > the consideration actually received prior to 01.04.2019 by more than 25% of consideration actually received; 

Value of such invoices for the purpose of determination of % invoicing = actual consideration received + 25 % of the actual consideration received; and 

3. Where, the value of procurement of inputs and input services prior to 01.04.2019 > the value of actual consumption of the inputs and input services used in the % of construction completed prior to 01.04.2019 by more than 25 % of value of actual consumption of inputs and input services, the jurisdictional commissioner or any other officer authorized in this regard may fix the Te based on actual per unit consumption of inputs and input services based on the documents duly certified by a chartered accountant or cost accountant submitted by the promoter in this regard, applying the accepted principles of accounting. 

Reversal of ITC if continuing with existing rates

Reversal of ITC by a promoter continuing to pay tax as per rates applicable prior to 01.04.2019 in terms of rule 42 (Inputs and input services) & 43 (capital goods) [effective from 01.04.2019]

Notification No.16/2017 Central Tax (rate) dated 29.01.2019 A. Reversal relating to input and input services

The following are a few points to be noted before proceeding for the computation:

• • ITC on inputs and input services used for real estate (residential or commercial) projects should be considered as common credit in the tax period in which the credit is eligible, where tax is paid at the rate of 18% or 12% (with deduction for 1/3^rd on value towards deemed value of land), as applicable. 

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• • W.r.t. common credit, the amount of eligible credit shall be calculated on the basis of the carpet area and not on the basis of sale value. Such calculation shall be done for each project separately.
  • Where any input or input service is used for more than one project, reasonable basis to be adopted to identify input or input service attributable for each project and then compliance with rule 42 to be done.
  • Such computation shall be done on a monthly basis and then re-computed finally on completion of project (i.e. by due of September return following the FY in which CC is issued or first occupation, whichever is earlier) and not annually. However, such final computation is not required to be done for RREP which underwent transition of ITC due to the introduction of new rates i.e. 1.5% or 7.5% (with deduction for 1/3rd on value towards deemed value of land), as applicable) i.e. this has to be done for the following projects
    1. Ongoing project which have opted for the new scheme of tax.
    2. New projects which did not require to do any reversal of ITC as per Annexure I and Annexure II ibid as there was no ITC availed prior to 01.04.2019

• Further, the final computation shall be done for ITC availed from 01.07.2017 or date of beginning of the project, whichever is later till the cut-off date. 

i. Mode of computation of the eligible common credit - Monthly:

Credit attributable towards exempt supply D1= C2 *E/F

Where 

                C2           = Common credit (input and input services)

5. = Aggregate carpet area of the apartments, construction of which is
   1. exempt 
   2. Not exempt but identified to be sold after cut-off date.

‘E’ would include 

5. 3. In the tax period during which cut-off date occurs, the carpet area of all apartments that remain un-booked.
   4. Carpet area of apartments that opt for the new rates
6. = Aggregate carpet area of the apartment in the project

ii. Final computation of eligible ITC 

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The above shall finally be calculated (for all ongoing projects and new projects which did not undergo ITC transition due to introduction of new rate) by due of September return following the FY in which the cut-off date occurs by applying the above formula where ‘E’ would be:

Aggregate carpet area of the apartments, construction of which is

1. 1. exempt and
   2. Not exempt but remain un-booked after cut-off date

On the final computation done as above, the final adjustment (excess/short) needs to be carried out in Form GSTR-3B or through Form GST DRC-03 in the month not later than the month of September following the end of financial year in which the cut-off date occurs, as follows

1. Excess ITC availed: Such excess need to be reversed along with interest @18% from 1^st of April of such financial year till the date of reversal.
2. Short ITC availed: Same can be claimed as credit in the return filed not later than September following the FY in which the cut-off date occurs.

Final computations of eligible ITC in respect of commercial portion for projects other than RREP i.e. where carpet area of commercial apartments > 15% of project carpet area, which underwent ITC transition due to introduction of new rates

This reversal is required in respect of the ongoing projects where the carpet area of the commercial apartments is more than 15% of the total project carpet area. Though the residential apartments in these projects are eligible for the new rates without ITC, the commercial apartments would be liable to GST at the rates as applicable prior to 01.04.2019 with ITC being eligible. Hence the requirement to identify the eligible ITC at the project completion as was done for the ongoing projects discussed above.

The computation shall be done as below:

C3 (Agg) = (Aggregate of monthly C3 determined for the period 01.07.02017 to         31.03.2019) * AC/AT   (+) (Aggregate of monthly C3 determined for                the period 01.04.2019 to the cut-off date)

Where, C3 (Agg) = Aggregate common credit on commercial portion in the project

AC = Total carpet area of commercial apartments in the project

AT = Total carpet area of all apartments in the project

The final eligible credit would be C3 (Agg)* E/F

Where, 

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E= total carpet area of commercial apartments which have not been booked till the cut-off date.

F=AC=Total carpet area of commercial projects in the apartment.

On the final computation done as above, the final adjustment (excess/short) needs to be carried out in Form GSTR-3B or through Form GST DRC-03 in the month not later than the month of September following the end of financial year in which the cut-off date occurs, as follows

1. Excess ITC availed: Such excess need to be reversed along with interest @18% from 1^st of April of such financial year till the date of reversal.
2. Short ITC availed: Same can be claimed as credit in the return filed not later than September following the FY in which the cut-off date occurs.

B. Rever