INTRODUCTION
Real Estate Industry is one of the most important pillars of the Indian economy. Real Estate Industry contributes between approx. 8% to India's Gross Domestic Product (GDP).
Real Estate - dictionary meaning.
“Land and anything fixed, immovable, or permanently attached to it such as appurtenances, buildings, fences, fixtures, improvements, roads, shrubs and trees (but not growing crops), sewers, structures, utility systems, and walls. Title to real estate normally includes title to air rights, mineral rights, and surface rights which can be bought, leased, sold, or transferred together or separately. Also called real property or realty”
REAL ESTATE IN GST REGIME
Under GST, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate where required, by the competent authority or before its first occupation whichever is earlier will be treated as services.
The expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following namely:-
I An architect registered with the Council of Architecture constituted under the Architects Act,1972; or
II A chartered engineer registered with the Institution of Engineers (India); or
III A licensed surveyor of the respective local body of the city or town or village or development or planning authority;
The term certificate from competent authority and first occupancy are independent of each other.
Certificate from competent authority will mean the permission by the authority for use and the word first occupation denotes the date when the property is physically occupied.
The condition of first occupation will be relevant in cases where the builder faces procedural delays in getting the completion certificate. In such cases, builder can prove the physical occupancy and need not pay GST. Even occupation in violation of municipal laws will be occupation since the word “First occupation” has not been defined under the Act.
GST shall not be applicable on the sale of units of complex after completion certificate or before its first occupation whichever is earlier. Hence, in case the first occupancy is proved, the relevance of the completion certificate shall be nullified. However, no mechanism seems to have been provided under the GST Act to prove the first occupancy which may again create some complications. Whether the building was occupied or not will be a question of fact and will be decided on case basis in accordance with the facts and circumstances of each case.
Comparing the tax structure under service tax and the GST Law, both the laws have excluded the sale of units of the complexes after the completion certificate as the same would amount to sale of immovable properties.
Under VAT law, the taxability used to arise only from the date of agreement with the customer is entered into as per the Apex Court Judgment in the case of Larsen & Turbo Limited v. State of Karnataka [2013] 65 VST 1 (SC); 2013-TIOL-46-SC-CT-LB; 2013-VIL-03-SC-LB. However under GST the date when the agreement with the customer is entered into will not be relevant.
Further, the definition of 'services' under GST law is very extensive and includes anything which is not 'goods' and thus even sale of immovable properties gets included. For better understanding the definition of 'goods' and 'services' are started below:-
Section 2(52) ”goods” means every kind of movable property other than actionable claim and money but includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply;
Section 2(102) 'Services' means anything other than goods;
Explanation 1. services includes transaction in money but does not include money and securities;
Explanation 2.- services does not includes transaction in money other than an activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination for which a separate consideration is charged.
As per the above definitions, goods include every kind of movable properties and the services include everything which is not a goods, hence such definition of services is too extensive and exhaustive which also includes the transaction of sale of immovable properties. Further there is no explanation added to the definition of services to exclude the transaction of sale of immovable properties. However, differential rates have been provided for taxing construction in cases where the value of land is included in the transaction value and where the value of land is not included. Thus an indirect abatement for excluding the land element has been provided.
However, sale of land and building (after completion certificate) have been expressly mentioned to be neither supply of goods or services under schedule III.
RATE OF GST ON REAL ESTATE
As Per the Earlier structure of indirect taxes, where the services tax was levied between 4.5% to 15% and the average maximums rate of VAT across the state was effective at around 5% to 10% subsuming the rate for a typical building construction project, the indirect tax rate may be worked out at 12-18% across the construction & real estate sector.
CGST and SGS T rate being charged by the Centre & state as of now, are single and uniform rate across all the states. Hence the Construction services are taxed at all the same rate across the country. Following are the rate of GST which is chargeable on value of taxable supply: -
• 8%- For some important infrastructure and affordable housing projects (involving value of land)
• 12% -
1. for some important infrastructure and affordable housing projects (without involving value of land)
2. for construction of commercial and residential complex involving land value.
•18% - Any other works contract/construction contract without involving land value.
But on 33rd GST Council meeting held as on 24-February-2019 GST council has recommended the below rate of GST for the Real Estate Construction sectors.
• GST shall be levied at effective GST rate of 5% without ITC on
Residential properties outside affordable segment
• GST shall be levied at effective GST of 1% without ITC on
Affordable Housing Properties.
GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment; GST shall be levied at effective GST of 1% without ITC on affordable housing properties. The new rate shall become applicable from 1st of April, 2019.
VALUE OF SUPPLY OF GOODS
The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
The value of supply shall include -
any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the Goods and Services Tax Act if charged separately by the supplier;
any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
Interest or late fee or penalty for delayed payment of any consideration for any supply; and
Subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
The value of the supply shall not include any discount which is given -
Before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
After the supply has been effected, if -
(i) Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
In the context of real-estate and construction, please give us some example of supplies without consideration?
Let's now try and see what all supplies can be covered under each of the above heads from a construction perspective: -
TAX INVOICE
Every Registered Person who is involved in the real estate business is required to issue Tax invoice bills invoiced to the person whom they are providing construction services. Person should mention the GSTIN No, the tax collected and so on in the invoice issued by it. Content of the Tax invoice shall comply the requirement of GST Act.
ACCOUNTS AND RECORDS
Every Taxable Person is liable to prepare and maintain proper books of accounts. It would also be liable to audit if the aggregate turnover exceeds the threshold limit of audit. Also to maintain proper Records of Supply & Expenses and preserve such records for 72 Months.
If the aggregate turnover exceeds 20 Lakhs cooperative society are compulsorily required to get registered, there is no other exemption for registration. Also in GST regime hosing society are eligible to claim ITC on inward supply made by it which was not allowed earlier, this would benefit the society in the form of reduction in cost. The society can transfer this benefit to its member is the form of reduction of maintenance charges collected from its member after due a detailed the cost benefit analysis available to the society under GST.
PERIOD OF RETENTION OF ACCOUNTS
Every Taxable person required to keep and maintain books of account or other records in accordance with the provisions of sub-section (1) of section 35 shall retain them until the expiry of seventy-two months from the due date of furnishing of annual return for the year pertaining to such accounts and records:
Provided that a registered person, who is a party to an appeal or revision or any other proceedings before any Appellate Authority or Revision Authority or Appellate Tribunal or court, whether filed by him or by the Commissioner, or is under investigation for an offence under Chapter XIX, shall retain the books of account and other records pertaining to the subject matter of such appeal or revision or proceedings or investigation for a period of one year after final disposal of such appeal or revision or proceedings or investigation, or for the period specified above, whichever is later.
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