The 34th meeting of the GST Council was held on 19th March 2019 where numerous rate-cuts and changes for the real estate industry were recommended in order to reduce the tax/compliance burden on all the concerned stakeholders. These changes were announced via several notifications dated 29th March 2019. Below are five of the most important changes brought about by such notifications which have been effective since 1st April 2019.

1.Previous rates (till 31st March 2019)

The tax rates prevailing till 31st March 2019 and in force under Notification No. 11/2017-C.T.(Rate) were:

• Commercial apartments – 18% (effective rate being 12%)
• Residential apartments (other than those below) – 18% (effective rate being 12%)
• Residential apartments under notified schemes – 12% ( effective rate being 8%)

In case of ongoing projects, the developers may opt the one-time option to pay GST at the old rates or transition to the new rates. However, if he/she chooses to pay GST at the old rates, it must be done by 10th May 2019 post which, it will be deemed that the new GST rates have been exercised.

2.New rates (from 1st April 2019)

Notification No. 3/2019-C.T.(Rate) gives the new rates for construction services in case of certain specific units. These rates are mandatory for projects commencing on or after 1st April 2019 and optional for projects which have commenced prior to the specified date.

For units in a Residential Real Estate Project (RREP), the rates are:

• Affordable residential apartments – 1.5% (effective rate being 1%)
• Residential apartments other than the above – 7.5% (effective rate being 5%)
• Commercial apartments – 7.5% (effective rate being 5%)

For units in a real estate project other than RREP, the rates are:

• Affordable residential apartments – 1.5% (effective rate being 1%)
• Residential apartments other than the above – 7.5% (effective rate is 5%)
• Commercial apartments – 18% (effective rate being 12%)

3. Other composite supplies of works contract

For works contract services, a rate of 12% has been prescribed for sub-contractors in case of residential apartments in a project with a carpet area of up to 60 sq. m. in metropolitan cities or 90 sq. m. otherwise, and for which the gross amount charged is not more than Rs. 45 lakhs.

This rate shall be applicable when such residential apartments constitute at least 50% of the total carpet area of all the apartments in the project, and the developer has not exercised the option to pay GST at the old rates for such services in case of ongoing projects.

In case the above criteria are not satisfied, the developer shall be liable to pay the shortfall in GST, i.e., 6% under RCM.

In case of certain works specified under Notified Schemes, the residual GST rate for works contract services would be 12%. Further, in all other cases, it would be 18%.

4.Liability of Developer in respect of the transfer of development rights/FSI or grant of long term lease of 30 years or more (on or after 1st April 2019)

GST on construction services provided to the landowner against the transfer of development rights/FSI is payable by the developer in the normal course. However, where such transfer takes place on or after 1st April 2019, the liability for the payment of GST shall be deferred till the time the completion certificate is issued or it is first occupied. Besides, GST in respect of the transfer of development rights/FSI or grant of long term lease of 30 years or more shall be payable by the developer under RCM in all the cases.

5.Apportionment of Common ITC

Apportionment of common ITC in case of the units which are sold before and after the completion certificate is issued or it is first occupied (i.e. between taxable and non-taxable supplies) must be undertaken separately for each project and is to be calculated by the due date of return for September following the end of the financial year of issuance of completion certificate/first occupation.

While transitioning to the new rates in respect of ongoing projects, developers are required to carry out such apportionment of ITC as a prerequisite condition.

The above changes have been brought about to ease the concerns of the real estate industry, which is facing some complex issues. The actual objective of these changes is to bring the sector’s entire supply chain within the scope of GST. The notifications issued on 29th March 2019 were meant for stakeholders to adapt and implement the new tax framework for the betterment of the real estate sector. They seek to provide clarifications to the existing complexities in this area.

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