GST ON CONSTRUCTION OF APARTMENTS

[Mr. M. GOVINDARAJAN]

Construction of apartments

GST is applicable on the construction of apartments.  GST for construction of apartments is on some rate up to 31.03.2019 and on different rates on or after 01.04.2019.  The apartments, for the purpose of GST may be of two types-

• Residential apartment; and
• Commercial apartment.

Residential apartment

The Construction of residential apartment is of two types viz.,-

• Affordable residential apartments; and
• Residential apartments other than affordable residential apartments.

Affordable Residential apartment

Affordable residential apartment is a residential apartment in a project which is having carpet area up to 60 square meter in metropolitan cities and 90 square meters in cities or towns other than the metropolitan cities.  Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with their geographical limits prescribed by the Government. 

The gross amount charged for which, by the builder is not more than ₹ 45 lakhs. For the purpose of determining the threshold of the gross amount of ₹ 45.00 lakh for affordable residential apartments, all the charges or amounts charged by the promoter from the buyer of the apartments shall form part of the gross amount charged.   However the value shall not include stamp duty payable to the statutory authority,  maintenance charges/deposits for maintenance of apartment or maintenance of common infrastructure.

Residential apartment other than affordable residential apartment

The construction of residential apartment not falling under the affordable residential apartment comes under this head.

GST Rate

The GST rate on the construction of affordable residential apartments by a promoter in a real estate project,  up to 31.03.2019 is 8% on the value of apartment after deduction of value of land.  ITC can be claimed in this case. The promoter is expected to pass the benefit of the credit to the buyers.  The GST rate on the affordable residential apartment after 01.04.2019 is 1% subject to the condition that no ITC can be claimed.

The GST rate on the construction of residential apartments other than affordable residential apartments by a promoter in a real estate project up to 31.03.2019 is 12%.  ITC may be availed by the promoters and they are expected to pass on the benefit of the credit to the buyers.  The GST rate on the construction of residential apartments other than affordable residential apartment on or after 01.04.2019 is 5% subject to the condition that no ITC can be claimed.

Option by the promoter

If the project has been started before 31.03.2019 and it is an ongoing project, the promoter is given option to select the tax rate either before 31.03.2019 or the rate applicable on or after 01.04.2019.  To continue with the old rates, the promoter/builder has to exercise on time option in the prescribed form and submit the same manually to the jurisdictional Commissioner by 10.05.2019.  In case the promoter does not exercise option in the prescribed form, it shall be deemed that he has opted for new rates in respect of ongoing projects and accordingly new rate of GST at 5% /1% shall be applicable and all the provisions of new scheme including transitional provisions shall be applied.

There is no such option available for the projects which commence on or after 01.04.2019.  In such cases new rates of tax are applicable.

Ongoing project

A project which meets the following conditions shall be considered as an ongoing project-

• Commencement certificate for the project, where required, has been issued by the competent authority on or before 31.03.2019.
• The commencement certificate is to be certified by a registered architect, chartered engineer or a licensed surveyor that the construction of the project has been started on or before 31.03.2019.
• Where the commencement certificate is not required to be issued by the competent authority, it is to be certified by any of the authorities that the construction of the project has been started on or before 31.03.2019.
• Completion certificate has not been issued or first occupation of the first project has not taken place on or before 31.03.2019.
• Apartments of the project have been partly or wholly, booked on or before 31.03.2019.

Construction of a project shall be considered to have been started on or before 31.03.2019, if the earthwork for site preparation for the project has been completed and excavation for foundation has started on or before 31.03.2019.

Commercial apartments

Commercial apartments may contain shops, godowns, offices etc.,  The commercial apartments may be constructed in a-

• Residential Real Estate Project; or
• Real Estate Project other than the Residential Real Estate Project.

A Residential Real Estate Project is a ‘Real Estate Project’ in which the carpet area of the commercial apartments is not more than 15% of the total carpet area of all the apartments in the project.   The RERA Authority is to declare the apartment as commercial apartment.

GST rate

With effect from 01.04.2019, effect rate of GST, after deduction of value of land or undivided share of land, on construction of commercial apartments by promoter in real estate project are as under-

• Construction of commercial apartments in a residential real estate project which commences on or after 01.04.2019 or in an ongoing project in respect of which the promoter has opted for new rates with effective from 01.04.2019 – 5% without ITC on total consideration;
• Construction of commercial apartments in a real estate project other than the residential real estate project or in an ongoing project in respect of which the promoter has opted for old rates – 12% with ITC on total consideration.

GST on reverse charge

A promoter shall purchase at least 80% of the value of input and input services from the registered suppliers.  For calculating this threshold, the value of services by way of grant of development rights, long term lease of land, floor space index, or the value of electricity, high speed diesel, motor spirit and natural gas used in the construction of residential apartments in project shall be excluded.

If the value of input and input services is less than 80% then the promoter has to pay GST @ 18% on reverse charge basis except cement on which tax has to be paid by the promoter on reverse charge basis at the rate 28% (CGST – 14% + SGST – 14%).

GST on transfer of rights etc.,

Supply of transfer of development rights,  long term lease of land or floor space index used for the construction of residential apartments in a project that are booked before the issue of completion certificate or first occupation is exempt from GST.

The supply of TDR or FST or long term lease of land on such value which is proportionate to construction of residential apartments that remain unbooked on the date of issue of completion certificate or first occupation GST is payable @ 18%, but the amount of tax shall be limited to 1% or 5% of the value of apartment depending upon whether the residential apartments for which such TDR or FSI is used in the affordable residential apartment or other than the said apartment.

TDR or FSI or long lease of land used for construction of commercial apartments shall attract GST @ 18%.

The above shall be applicable to the supply of TDR or FST or long term lease of land used in the new projects where new rate of 1% or 5% is applicable.

Payment of GST on TDR etc.,

The liability to pay GST on development right shall arise on the date of completion or first occupation of the project whichever is earlier.  The promoter shall liable to pay GST on reverse charge basis.

The liability to pay GST on FSI is as detailed below-

• In case of supply of FSI wherein consideration is in form of construction of commercial or residential apartments, liability o pay tax shall arise on date of issuance of completion certificate.
• In case of supply of FSI wherein monetary consideration is paid by promoter, liability to pay tax shall arise on date of issuance of completion certificate only if such FSI is relatable to construction of residential apartments.  The liability to pay tax shall arise immediately if such FSI is relatable to construction of commercial apartments.

In case of supply of long term lease of land for construction of commercial apartments, the tax shall be paid by the promoter immediately.  However, for construction of residential apartment, liability to pay tax on the upfront amount payable for long term lease shall arise on the date of issuance of completion certificate.