GST implications on Real Estate Transactions

The Topic GST on real state is divided into these following Headings:

1. What is Real Estate Business(Basics)
2. Chargeability of Real estate Transactions in GST
3. Exemptions Provided

1. What is Real estate Business:

A real estate business is a business entity that deals with the buying, selling, management or investment of real estate properties. However broadly there are 2 types of Transactions prevailing the Real estate Business

A. Works Contract Services:

Simply put, a works contract is essentially a contract of service which may also involve supply of goods in the execution of the contract. It is basically a composite supply of both services and goods, with the service element being dominant in the contract between parties. In a general sense, a contract of works, may relate to both immovable and immovable property. E.g. if a sub-contractor, undertakes a sub-contract for the building work, it would be a works contract in relation to immovable property. Similarly, if a composite supply in relation to movable property such as fabrication/painting/annual maintenance contracts etc. is undertaken, the same would come within the ambit of the broad definition of a works contract.

The Works Contracts has been defined in Section 2(119) of the CGST Act, 2017 as 'works contract'means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.'Thus, from the above it can be seen that the term works contract has been restricted to contract for building construction, fabrication etc. of any immovable property only. Any such composite supply undertaken on goods say for example a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST.

As per Para 6 (a) of Schedule II to the CGST Act, 2017, works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services.

B. Pure Labour Contracts:

These are the contracts in which construction service is provided without material, hence only pure labour is involved.

2. Chargeability of Real estate Transactions in GST:

Non-Applicability of GST in the Following Transactions:  

i. Sale of Properties in which Completion Certificates have been issued:

As per Schedule III of The CGST ACT, 2017, GST would not be applicable as Sale of building is treated as activity or transaction which shall be treated neither as a supply of good nor a supply of service. Where the entire consideration is received after issuance of Completion certificate, where required, by the competent authority or after its first Occupation, whichever is earlier. (Eg: Ready to Move Properties for which Completion Certificates have been issued)

ii. Sale and Purchase of Land:

As per Schedule III of the CGST ACT, 2017 Sale of land is neither a supply of goods nor supply of services.

For the Transaction except the above following are the GST Taxability Mechanism:

Before 1st April,2019 Real estate was Chargeable with the Following Rates:

*The Above rates are considered after giving effect of the abatement of 33%.

However, From 1st April, 2019 A New Revised Scheme was Announced.

Following are the Key Points of the revised scheme:

1. The scheme is applicable for all the Projects Started after 1st April,2019.
2. There was an Option given to all the builders regarding their ongoing projects as to whether continue with the old scheme or to convert into new scheme.
3. The Option given is Project wise.
4. In case of capital goods procured from unregistered person, the promoter is liable to pay GST at its respective rate under reverse charge.
5. Promoter has to pay GST @ 18% on reverse charge basis on all such inward supplies (to the extent short of 80% of inward supplies from registered supplier) except cement on which tax has to be paid (by the promoter on reverse charge basis) at the applicable rate, which at present is 28% (CGST 14% + SGST 14%)

Relevant Definitions:

1. Affordable Housing:

A residential house/flat of carpet area of up to 90 sqm in non- metropolitan cities/towns and 60 sqm in metropolitan cities having value up to Rs. 45 lacs (both for metropolitan and non- 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).

2. Ongoing Projects:

'On-going project'has been defined to mean a project Which has received commencement certificate and Certificate from an architect or other notified person that the construction has started and completion of the project has not been received

Earth work for site-preparation is completed and excavation has started before 31 March 2019.

At least some apartments in the project should have been booked prior to 1 April 2019.

At least one instalment should have been received from the flat buyer and should be credited to the bank account of the promoter.

3. RREP (Residential Real Estate Projects) :

Real Estate Project (REP) of residential apartments with commercial apartments not more than 15% of total carpet area of REP

4. Promotor:

a) a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or

b) a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or

c) any development authority or any other public body in respect of allottees of-

i) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or

ii) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or

d) an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or

e) any other person who acts himself as a builder, colonizer, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or

f) Such other person who constructs any building or apartment for sale to the general public.

3. Exemptions Provided:

i. Pure Services Contract(Other than Works contract) Provided to Govt.

ii.. Pure Labour Contracts of

• Construction
• Commissioning
• Erection
• Installation of Original works

For a Single residential Unit otherwise then as a part of Residential complex.

iii. Pure Labour Contracts of

Construction, erection, commissioning, installation of original works, repairs and maintenance, Alterations etc. for

Housing for all(urban) Mission or Pradhan Mantri Aawas Yojana (PMAY).

iv. Services Supplied by Electricity Distribution utilities by way of Construction, erection, Commissioning or installation of Infrastructure for extending electricity Distribution network up to the tube well of the farmer or agriculturist for agriculture use.

Taxability of TDR/FSI under GST will be Discussed later on.