Frequently Asked Questions Regarding Goods and Services Tax in the Indian Real Estate Sector
This comprehensive guide addresses frequently asked questions concerning Goods and Services Tax (GST) within India's real estate sector. It details current GST rates for residential and commercial construction, outlines conditions for rate eligibility, and clarifies the definitions of affordable housing and ongoing projects. Furthermore, the article explains GST liabilities for transferable development rights (TDR), floor space index (FSI), and long-term land leases, offering essential insights for developers and buyers alike.
The real estate industry plays a vital role in India's economy. Historically, property purchasers faced multiple taxes, including VAT, service tax, stamp duty, and registration fees. With the implementation of Goods and Services Tax (GST), a unified rate of 12% applies to properties under construction. In contrast, completed or ready-to-move properties are exempt from GST, provided a Completion Certificate (CC) has been issued. Significant changes occurred in March 2019 when the GST Council revised tax rates for residential properties, reducing them from 12% to 5%, and for affordable housing, from 8% to 1%. It is important to note that the new tax rate structure eliminates the availability of Input Tax Credit (ITC).
Common Questions about GST in Real Estate
1. What are the Current GST Rates for Residential Apartment Construction?
Effective April 1, 2019, the revised GST rates for housing projects, without the benefit of Input Tax Credit (ITC), are outlined below:
| Rate | Project Description |
|---|---|
| 1% | For new affordable housing projects initiated on or after April 1, 2019. |
| 1% | Applicable to ongoing affordable housing projects as of April 1, 2019, where the promoter chose the new rates. |
| 5% | For ongoing projects, excluding affordable housing, as of April 1, 2019. |
| 5% | For new projects, other than affordable housing, initiated on or after April 1, 2019. |
| 1% | For projects where commercial space constitutes less than 15% of the total carpet area. |
Criteria for Eligibility for These Rates:
- Input Tax Credit (ITC) Restrictions: Claiming Input Tax Credit is not permitted.
- Procurement from Registered Suppliers: A minimum of 80% of the aggregate value of inputs and input services must be procured from registered suppliers.
Certain services utilized in residential apartment construction are excluded from this 80% calculation, including:
- Developmental rights grants
- Long-term land leases
- Floor space index (FSI)
- The value of electricity
- The value of high-speed diesel
- Motor spirit
- Natural gas
Should the promoter fail to meet the 80% threshold for inward supplies from registered suppliers, GST at 18% must be paid on the shortfall through a reverse charge mechanism. An exception applies to cement, where a 28% tax rate is payable if procured from unregistered persons.
2. Definition of a Residential Real Estate Project (RREP)
A Real Estate Project qualifies as residential if the commercial space's carpet area does not exceed 15% of the total carpet area of all apartments within that project.
3. What Constitutes an Affordable Residential Apartment?
An apartment is classified as affordable if it meets the following specifications:
- Its carpet area is up to 60 square meters for metropolitan cities.
- Its carpet area is up to 90 square meters for cities and towns other than metropolitan cities.
- The gross amount charged by the developer is not more than Rs. 45 lakh.
For instance, if Mr. A, a PMAY CLSS beneficiary, is constructing a house with a carpet area of 150 square meters, he might still qualify for the 1% tax rate, provided the developer has not opted for the older tax rates. Despite exceeding the prescribed area limits, his apartment is considered affordable because he is a beneficiary of the PMAY CLSS scheme.
4. How to Calculate the Rs. 45 Lakh Limit for Affordable Housing Eligibility?
To determine eligibility for an affordable housing project, the Rs. 45 lakh limit encompasses all charges such as preferential location, parking, development, and common facility charges. However, this calculation excludes stamp duty, maintenance charges, and deposits for apartment and common infrastructure maintenance.
5. Is GST Payable on a Standalone Residential House?
If a single residential house is acquired before the competent authority issues its completion certificate, GST is applicable. Conversely, if the seller has obtained the completion certificate prior to the agreement, GST is not required.
6. What is the GST Rate for a Standalone Residential House?
A GST rate of 1% applies to a standalone residential house if it falls under an affordable residential housing project. If it does not qualify as an affordable housing project, a GST rate of 5% is applicable.
7. Defining an "Ongoing Project" as of April 1, 2019
A project is categorized as ongoing if it satisfies the following conditions:
- Commencement Certificate Requirement: Where a Commencement Certificate (CC) was necessary and issued by the competent authority on or before March 31, 2019. This must be verified by a registered architect, chartered engineer, or licensed surveyor confirming that construction began by March 31, 2019. For example, if a single-tower project with multiple floors receives some commencement certificates before March 31, 2019, and others afterward, it still qualifies as an ongoing project.
- No Commencement Certificate Requirement: If a Commencement Certificate was not mandatory from the competent authority, a registered architect, chartered engineer, or licensed surveyor must certify that construction commenced on or before March 31, 2019.
- Completion Certificate Status: The Completion Certificate (CC) must not have been issued on or before March 31, 2019. For instance, if a multi-block project receives a CC for only one block before April 1, 2019, the entire project is still considered ongoing. According to government notification, a project is complete only when the CC is issued for its entirety, not just a portion.
- First Occupation Status: The project's first occupation must not have occurred before March 31, 2019. For example, if an occupation certificate is received for only a partial area of a large project by March 31, 2019, the whole project remains categorized as ongoing.
- Apartment Bookings: Apartments must have been partly or wholly booked on or before March 31, 2019.
Example 1: This criterion does not apply to slum rehabilitation projects where beneficiaries do not provide monetary consideration for their allotted flats.
Important Note: A project where construction began before March 31, 2019, but bookings had not started, will not be considered an "ongoing project." Instead, it will be treated as a new project, subject to the new tax rates.
8. Criteria for Certifying Project Commencement by March 31, 2019
A construction project is deemed to have commenced on or before March 31, 2019, if the earthwork for site preparation has been completed and excavation for the foundation has begun by that date.
9. Can Developers Opt for Previous GST Rates with ITC Benefits?
For ongoing projects, a promoter or builder has a one-time opportunity to elect to pay tax at the older rates. This election must be communicated to the Jurisdictional Commissioner by May 20, 2019, using the prescribed form. Failure to communicate this choice will result in the automatic application of the new tax rates. Once submitted, the option cannot be modified.
Key Points:
- This option must be exercised independently for each ongoing project. Consequently, promoters may choose different options for various projects.
- This flexibility also extends to specific schemes such as PMAY, Housing For All, RAY, or any other Central or State Government housing initiatives.
- The choice to opt for old rates rests solely with the promoter or builder, not the buyer.
10. GST Rates for Commercial Apartment Construction (Effective April 1, 2019)
Effective April 1, 2019, the GST rates for commercial apartment construction (e.g., shops, warehouses, offices) within a real estate project are as follows:
| Description | Rate (After Land Value Deduction) |
|---|---|
| Commercial apartments within a Residential Real Estate Project (RREP) where construction began on or after April 1, 2019, or an ongoing project where the promoter selected new rates. | 5% on total consideration, without ITC. |
| Commercial apartments within a Real Estate Project (REP) other than an RREP, or an ongoing project where the promoter opted for old rates. | 12% on total consideration, with ITC. |
11. GST Rates on Transferable Development Rights (TDR), Floor Space Index (FSI), and Long-Term Land Leases
The transfer of development rights or FSI via an agreement on or before March 31, 2019, is tax-exempt, even if consideration (cash or kind) is paid partially or fully after April 1, 2019. The applicable tax rates are as follows:
- For Residential Apartment Construction: If TDR, FSI, or long-term land lease is used for residential apartments, GST is calculated proportionately on the value of construction that remains unbooked by the date of Completion Certificate issuance or first occupation. The tax rate is 18%, capped at 1% or 5% of the apartment's value, depending on whether it is an affordable or non-affordable residential apartment.
- For Commercial Space Construction: If TDR, FSI, or long-term land lease is utilized for commercial space construction, GST is applied at 18%.
12. Responsibility for GST Payment on TDR and FSI
The promoter is responsible for paying GST on a reverse charge basis for TDR or FSI supplied on or after April 1, 2019. Even if a landowner is not typically involved in land-related businesses, transferring development rights to a promoter is considered a supply of service under Section 7 of the CGST Act and is subject to GST. Furthermore, for outward supplies of TDR between developers, GST applies at 18% under reverse charge.
13. When Do Promoters Need to Discharge GST Liability for TDR, FSI, and Long-Term Leases?
The timing for promoters to settle their GST liabilities on TDR, FSI, and long-term lease supplies is detailed below:
| Description | Tax Point |
|---|---|
| Transferable Development Rights (TDR) | Tax liability is triggered on the earlier of the project's completion date or its first occupation. GST is then applied to the value proportionate to the residential apartments that are unbooked as of the Completion Certificate issuance or first occupation date. |
| Floor Space Index (FSI) | For FSI received after April 1, 2019: If consideration is in the form of commercial or residential apartment construction, liability arises upon Completion Certificate issuance. If monetary consideration is involved: for residential apartment construction, liability arises upon Completion Certificate issuance; for commercial apartment construction, liability is immediate. |
| Long-Term Lease | For long-term leases received after April 1, 2019: Liability arises upon Completion Certificate issuance for residential apartment construction. However, for commercial space, tax liability is immediate. |
14. Is the Option to Use Old GST Rates (with ITC) Available for New Projects (Post-April 1, 2019)?
No, this option is not available for new projects that commenced on or after April 1, 2019. This restriction also applies to schemes like PMAY, Housing for All, RAY, or any other central or state government housing programs. For projects initiated after April 1, 2019, promoters are required to mandatorily pay tax at the new rates.
15. Can Promoters Revise Invoices Using Debit/Credit Notes under CGST Act Section 34?
If invoices issued by a promoter before May 20, 2019, do not align with their chosen tax rates, they can issue a debit or credit note. This adjustment brings the transaction into conformity with the final tax option exercised.
16. Classification and Tax Rates for Works Contract Services to Developers Under the New Scheme
Under the revised scheme, the classification and tax rates for works contract services provided by a contractor to a developer or promoter are:
- Affordable Housing Project: 12%, provided affordable housing space exceeds 50% of the total carpet area.
- Residential Housing Project (Non-Affordable): 18%
- Commercial Housing: 18%
17. Calculating Tax Adjustments for Credit Notes on Units Booked Before April 1, 2019, and Later Canceled
Consider a scenario where a buyer paid a gross booking amount of Rs. 10 lakhs before April 1, 2019, on which the developer remitted GST of Rs. 1.2 lakhs (12% of Rs. 10 lakhs). If the booking is subsequently canceled, the developer can make a tax adjustment of Rs. 1.2 lakhs, provided the full amount is refunded to the buyer on or before September 2019.
18. Is GST Applicable When Completion or Occupancy Certificates are Pending?
Yes, GST is applicable when purchasing a house if the Completion Certificate (CC) or Occupancy Certificate (OC) has not yet been received.
19. Is GST Applicable to Completed Flats?
No, GST is not required when acquiring a flat after the Completion Certificate or Occupancy Certificate has been obtained.
20. Who is Responsible for Paying GST: The Builder or the Buyer?
The buyer is responsible for paying GST to the builder at the time of purchase.
21. Can Builders Collect GST from Customers?
Yes, builders are authorized to collect GST from customers.