GST in Redevelopment Projects
GST in Redevelopment Projects
Brief Note on Applicability of GST in Redevelopment Project
Pre GST Era
It was debated whether the builders/developers were liable to pay service tax for the flats/constructed area handed over to the land owners in exchange of land development rights provided by the owners.
The CBEC (CBIC) vide circular no 151/2/2012‐ST dated 10‐02‐2012 clarified that for the period after 01‐07‐2010, service tax would require to be paid by the builders/developers for the constructed area given to the land owner in lieu of TDR .
Such Service tax liability would arise at the time of transfer of possession of flats to the landowners by entering into conveyance deed or similar instrument.
GST Period
GST Liability of Developer
JDAs are taxable in GST to the extent of construction services provided by the developer in lieu of
TDR.
a) Value of supply of construction services to the land owner:‐
Notification No 4/2019 Central Tax (Rate) dated 29‐03‐2019 (w.e.f. 01‐04‐2019)
The Value of supply of service by way of transfer of development rights by a person to the promoter against consideration in the form of residential and commercial apartments shall be deemed to be equal to value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights are transferred by the promoter.
b) Time of Supply of construction services to the land owner :‐
Notification No 4/2018 clause (b) – central tax (rate) dated 25‐01‐2018
The liability to pay GST on supply of construction services for which consideration is received in the form of TDR , shall arise at the time of transfer of possession of the constructed complex by entering into a conveyance deed or similar instrument like allotment letter.
c) Applicable rates of GST on residential units :‐
Notification No 3/2019 –central tax (rate) dated 29‐03‐2019 ; w.e.f. 01‐04‐2019
( amending the services rate notification no 11/2017‐central tax(rate) dated 28‐06‐2017
| Description | Effective Rate of GST (After deduction of value of land‐1/3rd) |
|---|---|
| Construction of affordable residential apartments (Carpet Area not exceeding 60 sq mtrs in metropolitan cities or 90 sq mtrs in cities / towns other than metropolitan cities) | 1% without input tax credit on total consideration |
| Construction of residential apartments other than affordable residential apartments | 5% without input tax credit on total consideration |
*** These rates are applicable from 01‐04‐2019 .
To the ongoing projects on 01‐04‐2019, the one time option was given to pay GST at old rates @ 8% /12% and avail input tax credit. Those who have not excercised the option within prescribed time limit, new rates were made applicable.
d) Applicable rates of GST on commercial units :‐
Notification no 11/2017‐central tax(rate) dated 28‐06‐2017
| Description | Effective Rate of GST (After deduction of value of land‐1/3rd) |
|---|---|
| Construction of Commercial apartments in a Residential Real Estate Project (RREP) | 5% without input tax credit on total consideration |
| Construction of Commercial apartments in a Real Estate Project (REP) other than RREP | 12% without input tax credit on total consideration |
*** RREP :‐ REP in which carpet area of commercial apartments is not more than 15% of the total carpet area of all apartments in the project.
GST Liability of Landowner
Period from 01‐07‐2017 to 31‐03‐2019
Registered persons who supply development rights to a developer , builder, construction company or any other registered person against consideration wholly or partly , in the form of construction service of complex, building or civil structure; are liable to pay GST on supply of said services , on the consideration received in the form of construction service. The liability shall arise at the time transfer of possession of the constructed complex, by entering into conveyance deed or allotment letter etc.
a) Value of supply of TDR
Notification No 4/2019 Central Tax (Rate) dated 29‐03‐2019 (w.e.f. 01‐04‐2019)
The Value of supply of service by way of transfer of development rights by a person to the promoter against consideration in the form of residential and commercial apartments shall be deemed to be equal to value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights are transferred by the promoter.
b) Time of Supply of TDR by the land owner
For the Period from 01‐07‐2017 to 31‐03‐2019
The liability to pay GST on supply of TDR services for which consideration is received in the form of construction service, shall arise at the time of transfer of possession of the constructed complex by entering into a conveyance deed or similar instrument like allotment letter
c) W.e.f. 01‐04‐2019
Time of Supply of TDR ( Liability to be paid under RCM by promoter)
Notification No 4/2019 – central tax (rate) dated 29‐03‐2019 , inserting entry no 41A in notification no.12/2017‐ central tax (rate) dated 28‐06‐2017
The liability to pay GST on TDR shall arise on the date of completion or first occupation of the project whichever is earlier
Rate of GST applicable on supply of TDR
Real Estate Services (9972) – 18% ( S No 16 item (iii) of the Notification no. 11/2017‐ central tax (rate) dated 28‐06‐2017
W.e.f. 01‐04‐2019
Exemption in respect of development rights to the extent of residential apartments sold
Notification No 4/2019 – central tax (rate) dated 29‐03‐2019 , inserting entry no 41A in notification no.12/2017‐ central tax (rate) dated 28‐06‐2017
TDR from Landowner to promoters , in relation to residential projects are fully exempted to the extent of all resident apartments in an (RREP)/(REP) which are sold prior to completion and tax is paid thereon.
To the extent of the unsold apartments in the project, proportionate tax would have to be paid on the value of TDR by the promoter under RCM.
Notification No 4/2019 Central Tax (Rate) dated 29‐03‐2019 (w.e.f. 01‐04‐2019)
The Value of supply of service by way of transfer of development rights by a person to the promoter against consideration in the form of residential and commercial apartments shall be deemed to be equal to value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights are transferred by the promoter
– Adv. Vaidehi Godse, SGV Legal Advocates