Note On GST For Builders and Developers CA Yashwant Kasar

NOTE ON
GST FOR
BUILDERS AND DEVELOPERS
INCLUDING ‘JOINT DEVELOPMENT WITH LAND
OWNER’ AND ‘AFFORDABLE HOUSING’
CA YASHWANT KASAR
B.Com, FCA, CISA, DISA, PMP, FAIA
Email: yashwant@icai.org Cell: +91 98224 88777
November 2018
Download source : www.gstindia.com

GST for Builders and Developers CA Yashwant Kasar
TABLE OF CONTENTS
Introduction ........................................................................................... 3
Distinction between construction service and works contract service .. 4
Construction of residential, commercial or industrial complex ............. 5
Is Completion certificate essential for builder or developer or first occupation sufficient?
.............................................................................................................................. 6
Purchaser of flat is not liable to tax even if he sales before occupation
or completion ......................................................................................... 8
No refund of ITC even if input tax credit more than GST payable on
outward supply....................................................................................... 8
Valuation of flats given free to land owner, transferor of TDR or
owners of old flats at same place........................................................... 9
Liability of tax of land owner, transferor of TDR or earlier
tenant/owner ....................................................................................... 14
Accommodation/rent given to earlier tenants/owners during transition period............. 14
Joint Development by land owner and builder/developer................... 16
Time of supply in case of land development rights .................................................... 16
Rate of GST on construction of complex .............................................. 17
No separate tax for supply of land or undivided share of land as part of
composite supply of flats ..................................................................... 19
Affordable Housing ............................................................................... 20
Affordable Housing – CBIC Press Release DATED 7-2-2018 ....................................... 21
Department of Revenue (Tax Research Unit) Clarification .......................................... 24
Relevant Advance Rulings ....................................................................................... 29
1. Prajapati Developers ............................................................................ 29
2. The Ideal Construction ......................................................................... 30
2
INTRODUCTION
Works Contract Service is a specie of construction service. This activity has

special relevance as it has been a very litigation prone issue. Earlier, after
introduction of service tax on services, complexities of 'works contract' increased
as issue of valuation, TDS and reverse charge made this issue complex.
After introduction of GST and abolition of distinction between goods and services,
really the concept of 'works contract' has become redundant.
However, this term is continuing in GST also.
"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
- section 2(119) of CGST Act.
Works contract as defined in section 2(119) of CGST Act is 'supply of

service' - para 6(a) of Schedule II of CGST Act.
3
DISTINCTION BETWEEN
CONSTRUCTION SERVICE AND
WORKS CONTRACT SERVICE
Construction contract is also a 'works contract'. However, under GST, distinction
has been made between 'works contract service' and 'construction of complex'.
The distinction is that in case of works contract, a customer (recipient of supply

of service) approaches the supplier of service (contractor) to undertake
construction as per his requirements. In almost all the cases, the land is owned
by or taken on lease by customer. The contractor enters into contract with
customer and then undertakes construction with his own material. If the material
is supplied by recipient himself (customer), then it is not works contract. It is
simple contract for work.
In construction of complex, the builder or developer normally does not have any
identified customer. Even if he has some identified customers before
commencement of construction, he is undertaking construction activity on his
own and not on basis of contract with customer. The land never belongs to the
customer.
As an illustration, a society awards a contract to a contractor to construct
residential complex in premises owned by society, it will be a 'works contract'
and not 'construction of complex'.
4
CONSTRUCTION OF RESIDENTIAL,
COMMERCIAL OR INDUSTRIAL
COMPLEX
As per para 5(b) of Schedule II of CGST Act, following is 'supply of service'
‘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 after its first
occupation, whichever is earlier.’
Explanation. —For the purposes of this clause-
(1) the expression "competent authority" means the Government or any

authority authorized 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.
(2) the expression "construction" includes additions, alterations, replacements or

remodelling of any existing civil structure.
Residential Complex:
"Residential complex" means any complex comprising of a building or buildings,
having more than one single residential unit
5
- para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017.
Single Residential Unit:

"Single residential unit" means a self-contained residential unit which is designed
for use, wholly or principally, for residential purposes for one family
- para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both
dated 28-6-2017, effective from 1-7-2017.
The tax rate is 12% - SGST - 6% and CGST - 6%.
IS COMPLETION CERTIFICATE ESSENTIAL FOR BUILDER OR

DEVELOPER OR FIRST OCCUPATION SUFFICIENT?
If entire consideration is received 'after its first occupation', a builder or
developer is not liable to pay GST, even if completion certificate or occupancy
certificate is not obtained from authorities.
The words 'after its first occupation' are confusing.
'Occupation' by whom?
The 'occupation' should be of that particular flat which is being sold or any flat
in that complex?
In many places, there is delay in issuing completion certificate [Corruption is of
course one major reason, but there can be other reasons too]. However, the
customers start occupying the flats.
State Authorities register flat even before obtaining completion

certificate:
In many States, documents relating to flats are registered by State Government
authorities even before building is completed. Thus, State Governments have
willy-nilly accepted these transactions as transactions in immovable property.
Registration under Registration Act required only in case of immovable

property:
As per section 17(1)(b) of Registration Act, Non-testamentary Instrument
purport or operate to create, declare, assign, limit or extinguish (whether present
or future) any right, title or interest (whether vested or contingent) of the value
of over Rs. 100 in immovable property requires compulsory registration with
Registrar or Sub-Registrar appointed by Government.
6
As per section 2(6) of Registration Act, Immovable property includes any land,
buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any
other benefit arising out of land, and things attached to earth or permanently
fastened to anything which is attached to earth, but does not include standing
timber, growing crops or grass.
Tax on land and buildings is State subject:

Taxes on lands and buildings is specified in Entry No. 49 of List II (State List).
This entry is continuing under GST Law also.
Thus, even under GST Law, Taxes on lands and buildings is within jurisdiction of
State Government. Central Government can impose tax on land and buildings
only to the extent permitted by GST Council. This is done by including 'deeming
provision' in Schedule II of CGST Act or in a notification.
Conclusion:
It can be argued that once the buyers start occupying the flats, the building is
complete and is 'immovable property'.
It is not necessary that the flat being sold itself should have been occupied. In
that case, GST should not apply for subsequent sale of other flats, even if
completion certificate has not been obtained. This is particularly so where State
Registering Authorities register the sale deed and willy-nilly accept is as sale of
immovable property.
7
PURCHASER OF FLAT IS NOT LIABLE

TO TAX EVEN IF HE SALES BEFORE
OCCUPATION OR COMPLETION
The Purchaser of flat is not liable to tax even if he sales before occupation or
completion, for two reasons –
(a) He is not supplying construction service, as deeming provision requires supply
of construction service
(b) He is not in the business of sale of flats.
NO REFUND OF ITC EVEN IF INPUT

TAX CREDIT MORE THAN GST
PAYABLE ON OUTWARD SUPPLY
In case of inverted duty rates (i.e. input tax credit more that tax payable on
outward supply), there is provision of refund of excess credit under section 54(3)
of CGST and SGST Act.
However, in case of service of construction of complex [specified in Item 5(b) of
Schedule II of CGST Act], refund of unutilized ITC will not be available
- Notification No. 15/2017-CT (Rate) dated 28-6-2017.
8
VALUATION OF FLATS GIVEN FREE TO

LAND OWNER, TRANSFEROR OF TDR
OR OWNERS OF OLD FLATS AT SAME
PLACE
In many projects of construction of residential, commercial or industrial
complexes, the owner of land gives development rights to the builder/developer.
Similarly, in some cases, owner of TDR transfers TDR rights to builder/developer.
In some cases, joint development agreement is entered into between
builder/developer and land owner/transferor of TDR.
In all such cases, if payment is made by cheque/DD/cash by builder/developer

to the land owner or transferor of TDR, question of valuation does not arise and
GST @ 18% (9% CGST plus 9% SGST/UTGST) is payable on such amount by
the recipient, if such supply is in course of his business.
However, often, instead of making cash payment to the owner of land or

transferor of TDR, the builder/developer offers to give some flats/shops to the
owner of land or transferor of TDR (so called) free of cost. Of course, the supply
of flats is not 'free', it is only consideration given by builder/developer to land
owner or transferor of TDR in form other than cash.
In case of old residential/commercial complexes, normal practice adopted by

builder/developer is to re-locate the tenants or owners of such old complexes to
another place for some time, demolish the earlier building and construct new
residential/commercial complex. In that case, the earlier tenant or owner is often
given equivalent built up area in new residential/commercial complex without
any charge. Here also, there is no free supply but only consideration given by
builder/developer to the earlier tenant or owner in form other than cash [If the
earlier tenant or owner wants extra built up area, it is offered by
builder/developer to him on payment of commercial price].
After giving such so called 'free' flats, remaining flats are sold by
builder/developer to others for cash.
9
There is no doubt that the builder/developer is providing construction service to

the land owner, transferor of TDR or earlier tenant/owner of flats/shops. The
consideration is paid to them in form other than cash.
GST should be payable in respect of free flats/shops given to the land owner.
Departmental instructions to value these flats on basis of value of

similar flats sold to others
- As per CBI&C circular dated 10-2-2012, the valuation of flats given free should
be on basis of similar services.
The issue was again discussed by High Level Committee set up by Ministry of
Finance. On basis of their opinion, it was clarified that valuation of flats given to
land owner should be on basis of value of similar/identical flats or on basis of
cost plus profit, as stated in circular dated 10-2-2012 - CBI&C Instruction No.
354/311/2015-TRU dated 20-1-2016.
In Southern Properties v. CCE (2015) 49 GST 695 = 54 taxmann.com 116
(CESTAT), a prima facie view has been held that valuation should on basis of
value of similar flats and not on basis of value of land.
Is the value of construction of similar flats given to others comparable

with flats given free to land owner etc.?
The issue is whether the value of similar flats/shops given to others is comparable
with flats given free to land owner, transferor of TDR or earlier tenants/owners,
i.e. whether that value closely or substantially resembles the value of
construction of flats given 'free'.
It is clear that GST is payable on value of supply of construction services. This

value cannot include value of land, while open market value of similar flats
includes value of land also.
It is obvious that value of land is recovered by builder/owner from buyers of flats

who pay in cash. Thus, value of land is apportioned only on flats which are sold
for cash and not on all flats. Thus, the value of land is included in the price
charged to buyers. In fact, it is much higher than the average value of land, if
such value was apportioned on all flats/shops.
10
Even a cursory glance of definition of 'Open Market Value' and 'Supply of goods
or services or both of like kind and quality' is sufficient to establish that value of
similar flat/shop sold to others cannot be considered as 'open market value' of
flat/shop given 'free', as the first includes value of land while the second does
not include value of land.
Can we apply 'deeming provision' to calculate value of construction

service on basis of open market value of flats?
The general rate of GST on construction and works contract service is 18% (9%
CGST plus 9% SGST/UTGST).
However, in case of construction of complex, the builder charges an amount
which is inclusive of land or undivided share of land. In that case, as per para 2
of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-
6-2017, the land value will be deemed to be one third (33.33%) of total amount
(i.e. value including land value) and GST is payable on balance amount.
Thus, effectively GST rate is 12% (6% CGST plus 6% SGST/UTGST). Note that
GST rate continues to be 18% only. The effective rate comes to 12% only
because value of construction is reduced by deducting land value from total
amount charged by builder/developer to buyer.
This is a 'deeming provision' only, which is similar to composition scheme i.e. an

easy and hassle free way of calculating value of construction service.
However, in my view, such deeming provision cannot apply as the actual value
of land as included in open market value of similar flats may be more than
33.33%.
Value in any case cannot exceed value as determined under section 15 :

Issue is 'Can deemed value exceed value as calculated as per section 15 of CGST
Act?'
In cases where value of land exceeds 33.33% of value, the value of construction
will be less than 66.67%. However, goods and services tax will be payable on
66.67% of value.
This is obviously not permissible, as any deeming provision cannot prescribe a
value which is higher than value as determined under section 15 of CGST Act.
11
Rules or Notifications cannot override provisions of Act:

It is well settled that Rules or Notifications cannot override provisions of Act.
Rules are made to carry out the purpose of Act. The rules cannot be so framed
which do not carry out the purpose of the Act and cannot be in conflict with the
same. - Laghu Udyog Bharati v. UOI 105 Taxman 630 = 1999 AIR SCW 2771 =
AIR 1999 SC 2577 = 112 ELT 365 = 115 STC 616.
Rules cannot be framed so as to bring into existence substantive rights or

obligations or disabilities not contemplated by the provisions of the Act itself.
- Kunj Behari Lal v. State of HP 2000 AIR SCW 543 = AIR 2000 SC 1069 = (2000)
3 SCC 40 (SC 3 member bench) - quoted with approval and followed in Wipro
Ltd. v. ACC (2015) 319 ELT 177 (SC) * Petroleum and Natural Gas Regulatory
Board v. Indraprastha Gas Ltd. (2015) 9 SCC 209.
Rules and Notifications cannot override the provisions of Act and cannot be
derogatory to the object of the Act - UOI v. Jalyan Udyog - Para 34 - 1993 (68)
ELT 9 (SC). A rule cannot override or be contrary to a section - CCE v. Ashok
Arc 2005 (179) ELT 513 (SC 3 member bench).
Price of similar flats is not comparable:

As we saw above, price of similar flats or open market value is not comparable
as that price includes value of land, which may be more than 33.33% of total
amount charges for such flat and value of supply calculated on that basis will
exceed value as permissible under section 15 of CGST and SGST Act. Thus, in
my view, valuation on basis of (a) or (c) would be incorrect.
Value of supply of goods or services or both based on cost:

Where the value of a supply of goods or services or both is not determinable by
any of the preceding rules, the value shall be one hundred and ten per cent of
the cost of production or manufacture or cost of acquisition of such goods or
cost of provision of such services - Rule 30 of CGST and SGST Rules, 2017.
Residual method for determination of value of supply of goods or

services or both:
Where the value of supply of goods or services or both cannot be determined
under rules 27 to 30 of CGST and SGST Rules, the same shall be determined
using reasonable means consistent with the principles and general provisions of
12
section 15 of CGST Act and provisions of rules 27 to 30 of CGST Rules - rule 31
of CGST and SGST Rules, 2017.
Value of service can be on basis of rule 31 instead of on cost plus 10%

basis:
In case of supply of services, the supplier may opt for rule 31 ignoring rule 30 -
proviso to Rule 31 of CGST and SGST Rules, 2017.
How to value free flats/shops:

As per above, valuation can be on basis of rule 30 (cost plus 10%) or rule 31
(residual method).
In case of services, valuation can be done on basis of rule 31 without taking
recourse of rule 30. Hence, in my view, the builder/developer has following
choices -
♦ Value on basis of 'deeming provision' considering value of land as
33.33%, if the actual land value is around that figure or less than
33.33% [rule 31 i.e. 'using reasonable means' consistent with Acts and
Rules].
♦ Value on basis of cost plus 10% under rule 30.
♦ Value on the basis of price of similar flats/shops after deducting value of
land (if value of comparable land is available) as apportionable to that
flat/shop [rule 31].
13
LIABILITY OF TAX OF LAND OWNER,

TRANSFEROR OF TDR OR EARLIER
TENANT/OWNER
If the land owner or transferor of TDR is in the business of sale of land or transfer
of TDR, he is supplying the service in the course of business and hence will be
liable to pay tax @ 18%.
The builder/developer will be able to take Input Tax Credit of GST charged to
him by the land owner or transferor of TDR.
Since it is exchange of services between land owner/transferor of TDR and the
builder/developer, the value should be same as the value on which
builder/developer is liable to pay tax.
If the land owner, transferor of TDR or earlier tenant/owner is not in business of

such supply, he should not be liable to pay tax as such supply is not in the course
of or furtherance of business.
ACCOMMODATION/RENT GIVEN TO EARLIER TENANTS/OWNERS

DURING TRANSITION PERIOD
The builder/developer often offers alternate accommodation or compensates
rent to earlier tenant/owners during transition period i.e. till new flats/shops are
ready for occupation. This comes under 'tolerating an act or situation' which is a
deemed service.
The supplier of service is the earlier tenant or owner. However, this activity is
not in the course of or furtherance of business of the earlier tenant/owner and
hence there should be no liability on the earlier tenant/owner.
At present there is no reverse charge under section 9(4) of CGST Act and hence
the builder/developer is not presently liable. It is possible that the reverse charge
may be re-introduced w.e.f. 1-10-2019.
In my view, even then, the builder/developer will not be liable under reverse
charge. The reason is that under reverse charge, the recipient only discharges
the tax liability of supplier of service.
14
Here, the supplier of service is not liable to GST at all as his supply is not in
course or furtherance of business. Hence, a non-existent liability of tax cannot
be shifted to recipient of service.
Of course, litigation cannot be ruled out.
Conclusion:
Value of similar flats/shops charged to buyers who pay in cash is not comparable
and hence cannot be accepted for valuation of free flats/shops given to land
owner, transferor or TDR or earlier tenants/owners, as the value of similar flats
includes value of land.
Hence, the builder/developer has following options
(a) to value the service on basis of rule 30 of CGST and SGST Rules, i.e. on basis
of 110% of cost of provision of service or
(b) value of similar flats after deducting value of land on proportionate basis
under rule 31
(c) take value of land as 33.33% if the actual value of apportioned land is around
that figure, under rule 31 of CGST and SGST Rules.
Transferor of TDR or development rights to land to builder/developer

will be liable to pay GST if such supply is in the course of his business.
15
JOINT DEVELOPMENT BY LAND

OWNER AND BUILDER/DEVELOPER
In some cases, the land owner and builder/developer may have a joint venture
for the construction project. In some cases, they may form a separate legal entity
or they may operate as UJV (Unincorporated Joint Venture). In such cases, GST
will be payable.
Para 2.7 of CBI&C Circular No. 151/2/2012-ST dated 10-2-2012 states as follows
-
Joint Development Agreement Model: Under this model, land owner and
builder/developer join hands and may either create a new entity or otherwise
operate as an unincorporated association, on partnership/joint/collaboration
basis, with mutuality of interest and to share common risk/profit together. The
new entity undertakes construction on behalf of landowner and
builder/developer.
Clarification: Circular 148/17/2011-ST dated 13-12-2011, particularly paragraphs
7, 8, 9 apply mutatis mutandis in this regard.
TIME OF SUPPLY IN CASE OF LAND DEVELOPMENT RIGHTS

Usually, land owner provides land for which he is given some flats/industrial galas
etc. Thus, when the builder/developer gets land from the land owner, this can
be said to be 'advance received' and SGST may become payable immediately.
However, CBI&C, vide its Circular No. 151/2/2012-ST dated 10-2-2012 had
clarified that service tax will be payable by the builder/developer on the
'construction service' involved in the flats to be given to the land owner, at the
time when the possession or right in the property of the said flats are transferred
to the land owner by entering into a conveyance deed or similar instrument (e.g.
allotment letter) - this view has been confirmed in CBE&C Instruction F No.
354/311/2015-TRU, dated 20-1-2016.
This principle has also been confirmed in case of transfer of TDR by land owner
to builder/developer in Notification Nos. 4/2018-CT (Rate) and 4/2018-IT (Rate)
both dated 25-1-2018.
16
Thus now it is well settled that GST on such flats given to land owner will be
payable only when these flats are handed over to land owner.
RATE OF GST ON CONSTRUCTION OF

COMPLEX
The general rate of GST on construction and works contract service is 18% (9%
CGST plus 9% SGST) or 18% IGST.
However, in case of construction of complex, the builder charges a amount which
is inclusive of land or undivided share of land. In that case, the land value will
be taken as one third (33.33%) of total amount (i.e. value including land value)
and GST is payable on balance amount.
Thus, effectively GST rate is 12% (6% CGST plus 6% SGST) or 12% IGST.
(As per Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate), For 8
types of Affordable housings where the tax rate is 12% IGST [or 6% CGST
plus 6% SGST/UTGST], Effective Rate of 8% after deducting 1/3rd Value for
the Land Portion involved)
The statutory wording is as follows -

In case of supply of service specified in column (3), in item (i); sub-item (b),
sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-
item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item
(c) of item (vi), against serial number 3 of the Table above, involving transfer of
land or undivided share of land, as the case may be, the value of such supply
shall be equivalent to the total amount charged for such supply less the value of
transfer of land or undivided share of land, as the case may be, and the value of
such transfer of land or undivided share of land, as the case may be, in such
supply shall be deemed to be one third of the total amount charged for such
supply - para 2 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate)
both dated 28-6-2017 as amended w.e.f. 25-1-2018.
The para 2 was reading as follows upto 25-1-2018 - In case of supply of services
specified in Sr No. 3(i) of the Table (construction of complex), involving transfer
of property in land or undivided share of land, as the case may be, the value of
supply of services and goods portion in such supply shall be equivalent to the
total amount charged for such supply less the value of land or undivided share
17
of land, as the case may be, and the value of land or undivided share of land, as
the case may be, in such supply shall be deemed to be one third of the total
amount charged for such supply - para 2 of Notification No. 11/2017-CT (Rate)
and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Principally, there seems to be no change in earlier para and new para, except
that new para covers all low cost housing schemes.
Total Amount:
'Total amount' means the sum total of,-
(a) consideration charged for aforesaid service (construction of complex) and
(b) amount charged for transfer of land or undivided share of land, as the case
may be, including by way of lease or sub-lease
- Explanation to para 2 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT
(Rate) both dated 28-6-2017, effective from 1-7-2017. Words in italics inserted
w.e.f. 25-1-2018.
18
NO SEPARATE TAX FOR SUPPLY OF

LAND OR UNDIVIDED SHARE OF LAND
AS PART OF COMPOSITE SUPPLY OF
FLATS
When a builder sales flat to buyer, he also sometimes transfers to him undivided
share of land by way of lease or sub-lease.
In such cases, the value of service for GST is Nil, if the amount charged for such
lease or sub-lease is one-third of total amount charged for composite supply or
less than one-third of total amount charged
- Sr No. 16(ii) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates)
dated 28-6-2017 inserted w.e.f. 25-1-2018.
The detailed wording is quite clumsy, but its essence is that such leasing of land
may be during
(a) construction of complex
(b) low cost housing, scheme or
(c) residential complex for Government, Local Authority, Governmental Authority
or Governmental Entity.
Even otherwise, since supply of flat is a composite contract, there should not be
any separate tax on lease of land.
19
AFFORDABLE HOUSING
As per Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate), following
are the 8 types of Affordable housings where the tax rate is 12% IGST [or
6% CGST plus 6% SGST/UTGST], Effective Rate of 8% after deducting 1/3rd
Value for the Land Portion involved on composite supply of works contract as
defined in section 2(119) of CGST Act:
1. a civil structure or any other original works pertaining to a scheme under

Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana
[w.e.f. 22-8-2017]
2. a civil structure or any other original works pertaining to the "ln-situ"

redevelopment of existing slums using land as a resource, under the Housing
for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) [w.e.f. 25-1-
2018]
[The wording during 22-8-2017 to 25-1-2018 was as follows - a civil
structure or any other original works pertaining to the In-situ rehabilitation of
existing slum dwellers using land as a resource through private participation
under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only
for existing slum dwellers].
3. a civil structure or any other original works pertaining to the "Beneficiary led
individual house construction/enhancement" under the Housing for All
(Urban) Mission/Pradhan Mantri Awas Yojana [w.e.f. 22-8-2017]
4. a civil structure or any other original works pertaining to the "Economically

Weaker Section (EWS) houses" constructed under the Affordable Housing in
partnership by State or Union territory or local authority or urban
development authority under the Housing for All (Urban) Mission/Pradhan
Mantri Awas Yojana (Urban) [this clause inserted w.e.f. 25-1-2018]
5. a civil structure or any other original works pertaining to the "houses

constructed or acquired under the Credit Linked Subsidy Scheme for
Economically Weaker Section (EWS)/Lower Income Group (LIG)/Middle
Income Group-1 (MIG-1)/Middle Income Group-2 (MIG-2)" under the
Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) [this
clause inserted w.e.f. 25-1-2018]
20
6. low-cost houses up to a carpet area of 60 square metres per house in a

housing project approved by competent authority empowered under the
'Scheme of Affordable Housing in Partnership' framed by the Ministry of
Housing and Urban Poverty Alleviation, Government of India [w.e.f. 22-8-
2017].
7. low cost houses up to a carpet area of 60 square metres per house in a

housing project approved by the competent authority under- (1) the
"Affordable Housing in Partnership" component of the Housing for All (Urban)
Mission/Pradhan Mantri Awas Yojana (2) any housing scheme of a State
Government [w.e.f. 22-8-2017].
8. low-cost houses up to a carpet area of 60 square metres per house

in an affordable housing project which has been given
infrastructure status vide notification of Government of India, in
Ministry of Finance, Department of Economic Affairs vide F. No.
13/6/2009-INF, dated the 30th March, 2017 [This clause inserted
w.e.f. 25-1-2018].
AFFORDABLE HOUSING – CBIC PRESS RELEASE DATED 7-2-2018

In its 25th Meeting held on 18th January, 2018, the GST Council had made
several important recommendations for the Housing Sector which have come
into force with effect from 25th January, 2018. The recommendations are
expected to promote affordable housing for the masses in the country.
One of the important recommendations made is to extend the concessional
rate of GST of 12% (effective rate of 8% after deducting one third of the
amount charged for the house, flat etc. towards the cost of land or undivided
share of land, as the case may be) in housing sector to construction
of houses constructed/acquired under the Credit Linked Subsidy Scheme (CLSS)
for Economically Weaker Sections (EWS)/Lower Income Group (LIG)/Middle
Income Group-1 (M1G-1)/Middle Income Group-2 (M1G-2) under
the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana
(Urban).
Credit Linked Subsidy Scheme (CLSS) is one of the components of Housing for
All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY) (Urban). Under this
component, subsidy would be provided on home loans taken by eligible urban
poor (EWS/LIG/MIG-L MIG-II) for acquisition and construction of house. Credit
21
linked subsidy would also be available for housing loans availed for new
construction and for addition of rooms, kitchen, toilet etc, to existing dwellings
as incremental housing. The carpet area of houses constructed under this
component of the mission would be up to 30 square meters for EWSA, 60 Square
Meters for LIG, 120 sqm for MIG I and 150 Sqm for MIG II. The benefit of Credit
Linked Subsidy Scheme may be taken by the Economical Weaker sections or
Low/Middle Income Groups for purchase of houses under any project. The
maximum annual income for eligibility of beneficiaries under the
scheme can be up to Rs.18 lakhs. It covers a very large section of population
which aspires to own a home.
So far, houses acquired under CLSS attracted effective GST rate of 18%
(effective GST rate of 12% after deducting value of land). The concessional rate
of 12% was applicable only on houses constructed under the other three
components of the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana
(Urban), namely (i) ln-situ redevelopment of existing slums using land as a
resource component; (ii) Affordable Housing in partnership and (iii) Beneficiary
led individual house construction/enhancement. The exemption has now been
recommended for houses acquired under the CLSS component also. Therefore,
the buyers would be entitled to interest subsidy under the Scheme as well to a
lower concessional rate of GST of 8% (effective rate after deducting value of
land).
The GST Council has also recommended that the benefit of concessional rate
of GST of 12% (effective GST rate of 8% after deducting value of land)
applicable to houses supplied to existing slum dwellers under the in-situ
redevelopment of existing slums using land as a resource component of
PMAY may be extended to houses purchased by persons other than
existing slum dwellers also. This would make the in-situ redevelopment of
existing slums using land as a resource component of PMAY more attractive to
builders as well as buyers.
The third recommendation of the Council is to include houses constructed
for 'Economically Weaker Section (EWS)' under
the Affordable Housing in partnership (PMAY) under the concessional rate
of GST of 8% (effective rate after deducting value of land). This will support
construction of houses up to 30 sqm carpet area.
The Fourth Recommendation of the Council is to extend the concessional rate
of 12% to services by way of construction of low cost houses up to a
carpet area of 60 sqm in a housing project which has been given infrastructure
status under notification No. 13/06/2009 dated 30th March, 2009. The said
notification of Department of Economic Affairs provides infrastructure status
to Affordable Housing.
Affordable Housing has been defined in the said notification as a housing project
using at least 50% of the FAR/FSI for dwelling units with carpet area of not more
than 60 sqm. The recommendation of the Council would extend the
22
concessional rate of 8% GST (after deducting value of land) to
construction of flats/houses of less than 60 sqm in projects other than
the projects covered by any scheme of the Central or State Government
also.
In addition to the above, in order to provide a fillip to the housing and
construction sector, GST Council has decided to give exemption to leasing of
land by Government to Governmental Authority or Government
Entity. [Government Entity is defined to mean an authority or board or any other
body including a society, trust, corporation, (i) set-up by an Act of Parliament or
State Legislature; or (ii) established by any Government, with 90% or more
participation by way of equity or control, to carry out any function entrusted by
the Central Government, State Government, UT or a local authority].
Also, any sale/lease/sub-lease of land as a part of the composite sale
of flats has also been exempted from GST. Therefore, in effect, the
Government does not levy GST on supply of land whether by way of
sale or lease or sub-lease to the buyer of flats and in fact, gives a
deduction on account of the value of land included in the value of flats
and only the value of flat is subjected to GST.
It may be recalled that all inputs used in and capital goods deployed for
construction of flats, houses, etc attract GST of 18% or 28%. As against
this, most of the housing projects in the affordable segment in the
country would now attract GST of 8% (after deducting value of
land). As a result, the builder or developer will not be required to pay GST on
the construction service of flats etc. in cash but would have enough ITC (input
tax credits) in his books to pay the output GST, in which case, he should not
recover any GST payable on the flats from the buyers. He can recover GST from
the buyers of flats only if he recalibrates the cost of the flat after factoring in the
full ITC available in the GST regime and reduces the ex-GST price of flats.
The builders/developers are expected to follow the principles laid down under
Section 171 of the GST Act scrupulously. The above changes have come into
force with effect from 25 January 2018.
23
DEPARTMENT OF REVENUE (TAX RESEARCH UNIT) CLARIFICATION
F.No. 354/52/2018-TRU
Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
Room No. 146 G, North Block
New Delhi,
****
Dated: 7th May, 2018
Sub: Request for clarification to enable availing 8% GST on Affordable Housing-

Reg.
I am directed to refer to your letter no. CREDAI/MoF/2018/14 dated 19th March,
2018 on above subject and to give our comments on the issues raised therein as
under,
SI. No. Issues TRU Comments
1. Authenticated document to be A civil structure or any other

relied upon by the developer to original works pertaining to the
charge concessional rate of “houses constructed or acquired
GST on CLSS housing. under theCredit Linked Subsidy
Scheme for Economically Weaker
Section (EWS)/ Lower Income
Group (LIG)/ Middle Income
Group-1 (MIG-1/ Middle Income
Group-2 (MIG-2)” under the
Housing for All (Urban) Mission/
Pradhan Mantri Awas Yojana
(Urban) attracts concessional GST
of 8% (provided value of land is
included in the price of the house).
As per the detailed Operational
Guidelines available on Ministry of
Housing and Urban Affairs
website to avail the CLSS benefit,
the interest subsidy will be credited
24
to the loan account of beneficiaries
through Primary Lending
Institutions (PLIs), such as, banks,
etc resulting in reduced effective
housing loan and Equated Monthly
installments (EMI). According to the
said guidelines, PLIs such as banks,
housing Finance corporations,
NBFCs etc.are required to register
with Central Nodal Agencies (CNAs).
The CNAs are required to release
subsidy under the scheme to the
PLIs in respect of loans sanctioned
by them to borrower/ beneficiaries.
The PLIs are required to provide
each borrower/ beneficiary a
statement, which will make him/ her
understand the amount given as
subsidy, how the subsidy has been
adjusted and the impact of the
subsidy on his/ her monthly
installments (EMI). PLIs will also
provide the utilization/end use
certificate and also a certificate in
relation to the physical progress of
the construction of the housing unit
financed under the scheme to the
CNAs on a quarterly basis. Thus
PLIs are closely involved in the
implementation of the CLSS
Scheme. MHUA may prescribe a
certificate by PLIs on the basis of
which the builder may charge
reduced rate of GST on houses
constructed/acquired under
CLSS.The certificate may be
addressed to the beneficiary with a
copy to the builder, certifying that
the borrower is a beneficiary of the
CLSS. The certificate may contain
relevant details such as the name,
address, account number of the
borrower, complete address and
25
other details of the housing unit for
which the CLSS benefit has been
granted, Aadhar number. The
details of CLSS beneficiaries and the
housing units for which CLSS benefit
has been sanctioned are published
quarterly/ monthly on the websites
of MHUA/CNAs and the builders
charge concessional rate of GST
based on the same.
The administrative Ministry may be
requested to prescribe a certificate
by PLIs (which will be based on the
interest subsidy they credit to the
beneficiaries’ account) to the
beneficiary & Builder/ developer
based on which the builder would be
eligible to pay concessional GST of
8% for CLSS housing [S No
3(iv)(db) of notification No
11/2017-CTR].
2. Requirement of specific Low cost houses up to a carpet

approval/ certificate for area of 60 .square metres per
residential projects to qualify house in an affordable housing
as `Infrastructure status’ project, which has been given
infrastructure status under
notification F. No. 13/6/2009-INF,
dated the 30th March, 2017 of MOF
(DEA), attract concessional GST of
8% (the value of the undivided
share of land is included in the
price of the house). Whether the
housing project qualifies as
affordable housing project or
not,shall be determined by the
builder/ developer as per the
definition of affordable
housing given in the above
mentioned notification (i.e.,
affordable housing has been
defined as a housing project using
at least 50% of FAR/FSI for
26
dwelling units with carpet area of
not more than 60 SQM). No
certificate from any authority is
required.
It is also pertinent to point out here
that low cost houses up to a carpet
area of 60 square metres per house
in a housing project approved under
the affordable housing in
partnership framed by MHUA or any
housing scheme of a State
Government, also attract
concessional GST of 8% (the value
of the undivided share of land is
included in the price of the house).
3. Mechanism for reversal of The view taken by CREDAI in their

already charged GST to a letter dated 19-03-2018 is found to
customer who at a later date be correct.
becomes eligible for CLSS Construction of houses is normally a
benefit. CREDAI has stated continuous supply of service
that customers initially book [section 2(33) of CGST Act, 2017].
flats from their own fund and In case of continuous supply of
later on apply for loan. So, the service, invoice shall be issued on or
Developer will initially apply before the due date of payment or
regular rate to the customer the date of receipt of payment by
and then once customer the supplier or completion of an
becomes eligible for CLSS event to which payment is linked.
benefit, concessional rate of [Section 31(5) of COST Act, 2017].
GST would apply. Therefore, it The time of supply of the service
may be clarified that shall be determined accordingly
concessional rate of GST can under section 13 of the CGST Act.
be given to the customer from Portion of continuous supply of
the date of booking/ 25th service, time of supply of which is
January, 2018 whichever is on 25th January, 2018 (the date of
later irrespective of GST issue of notification prescribing
having been already being concessional GST for CLSS) or later
charged at regular rate. shall be eligible for the concessional
rate of GST applicable to houses
acquired under CLSS irrespective of
when the house is booked or
27
approval for CLSS benefit is
obtained.
Where the builder has collected
higher GST from the buyer in earlier
months, the excess can be adjusted
by the builder against his future GST
liability (by issue of credit notes). It
is pertinent to point out here that
the definition of taxable supply
given in GSTR-3B, excludes value of
credit notes. This means that the
GST liability on the date of filing of
return by the builder gets
proportionate reduced on account
of credit note issued. [Credit notes
can be issued by the
builder/developer, infer a/ia, when
the tax charged in a tax invoice is
found to exceed the tax payable in
respect of such supply, under
section 34 of CGST Act. The same
shall contain the particulars
prescribed under rule 53 of CGST
Rules including name and address
of the recipient of the flat.]
28
RELEVANT ADVANCE RULINGS
1. PRAJAPATI DEVELOPERS
CGST : Where project 'Prajapati Magnum' undertaken by applicants falls

under definition of "Affordable Housing", applicant's case is covered
under tax rate of 12% under Heading 9954 (Construction Services), (v)
(da) of Notification No. 11/2017-Central Tax (Rate) dated 28-6-2017, but
benefit of reduced rate would be available to them only in cases of
supply effected after 25-1-2018 i.e. date on which Notification No.
1/2018-Central Tax (Rate) was issued and benefit of this reduced rate
would be applicable in case of only those flats which are of carpet area
upto 60 sq mtrs
AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA

Prajapati Developers, In re
B.V. BORHADE AND PANKAJ KUMAR, MEMBER
ORDER NO.GST-ARA, NO. 02/2018-19/B-58
JULY 3, 2018
Classification of services - Construction services (NR) - Applicant is engaged in

business of construction of residential and commercial complex - Applicant is
undertaking development of residential apartments under a project called
'Prajapati Magnum' - Whether since project undertaken by applicant falls under
definition of 'Affordable Housing', applicant's case is covered under tax rate of 12
per cent, under Heading 9954 (Construction Services) of Notification No. 11/2017
but benefit of reduced rate would be available to them only in cases of supply
effected after 25-1-2018, i.e., date on which Notification 1/2018-Central Tax
(Rate) was issued and benefit of this reduced rate would be applicable in case of
only those flats which are of carpet area upto 60 sq. mtrs. - Held, yes
29
2. THE IDEAL CONSTRUCTION

GST : Where concessional rate of tax of 12 per cent
on affordable housing project is levied by GST Council, builder or
developer having paid GST of 18 per cent or 28 per cent on inputs
and capital goods used in construction of flats, will not be required
to pay GST on construction service of flats, etc., as they would
have enough ITC (input tax credits) in their books to pay output
GST
[2018] 97 taxmann.com 316 (AAR - MAHARASHTRA)
AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA
The Ideal Construction, In re
B.V. BORHADE AND PANKAJ KUMAR, MEMBER
NO. GST-ARA-01/2018-19/B-109
SEPTEMBER 5, 2018
Classification of services - Construction services (NR) - Applicant, a partnership

firm of builders and developers is to undertake an affordable housing project on
their land - It seeks advance ruling on what is rate of tax to be levied on sale of
flats/units to prospective buyers - According to sub-item (da) of item (v)
of Notification No. 1/2018 - Central Tax (Rate) 25-1-2018, low-cost houses up to
a carpet area of 60 square metres per house is an affordable housing project which
has been given infrastructure status vide notification of Government of India -
Whether since project undertaken by applicant falls under definition of
'Affordable Housing project' concessional rate of taxes to be levied is 12 per cent
(8 per cent GST after deducting value of land) - Held, yes
Section 16 of the Central Goods and Services Tax Act, 2017 - Input tax credit -
Eligibility and condition for taking credits (NR) - GST Council has extended
concessional rate of 12 per cent (8 per cent GST after deducting value of land) to
services by way of construction of low cost houses up to a carpet area of 60 sq.
mtrs. in a affordable housing project - Whether, consequently, builder or developer
having paid GST of 18 per cent or 28 per cent on inputs and capital goods used
in construction of flats, will not be required to pay GST on construction service of
flats, etc., in cash as they would have enough ITC (input tax credits) in their books
to pay output GST; further, they should not recover any GST payable on flats from
buyers - Held, yes
Thank You !
30

Note On GST For Builders and Developers CA Yashwant Kasar

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Note On GST For Builders and Developers CA Yashwant Kasar

Transféré par

Droits d'auteur :

Formats disponibles

NOTE ON

Download source : www.gstindia.com

Works Contract Service is a specie of construction service. This activity has

"Works contract" means a contract for building, construction, fabrication,

Works contract as defined in section 2(119) of CGST Act is 'supply of

The distinction is that in case of works contract, a customer (recipient of supply

‘Construction of a complex, building, civil structure or a part thereof, including a

Explanation. —For the purposes of this clause-

(1) the expression "competent authority" means the Government or any

(2) the expression "construction" includes additions, alterations, replacements or

Single Residential Unit:

IS COMPLETION CERTIFICATE ESSENTIAL FOR BUILDER OR

State Authorities register flat even before obtaining completion

Registration under Registration Act required only in case of immovable

Tax on land and buildings is State subject:

PURCHASER OF FLAT IS NOT LIABLE

NO REFUND OF ITC EVEN IF INPUT

VALUATION OF FLATS GIVEN FREE TO

In all such cases, if payment is made by cheque/DD/cash by builder/developer

However, often, instead of making cash payment to the owner of land or

In case of old residential/commercial complexes, normal practice adopted by

There is no doubt that the builder/developer is providing construction service to

Departmental instructions to value these flats on basis of value of

Is the value of construction of similar flats given to others comparable

It is clear that GST is payable on value of supply of construction services. This

It is obvious that value of land is recovered by builder/owner from buyers of flats

Can we apply 'deeming provision' to calculate value of construction

This is a 'deeming provision' only, which is similar to composition scheme i.e. an

Value in any case cannot exceed value as determined under section 15 :

Rules or Notifications cannot override provisions of Act:

Rules cannot be framed so as to bring into existence substantive rights or

Price of similar flats is not comparable:

Value of supply of goods or services or both based on cost:

Residual method for determination of value of supply of goods or

Value of service can be on basis of rule 31 instead of on cost plus 10%

How to value free flats/shops:

LIABILITY OF TAX OF LAND OWNER,

If the land owner, transferor of TDR or earlier tenant/owner is not in business of

ACCOMMODATION/RENT GIVEN TO EARLIER TENANTS/OWNERS

Transferor of TDR or development rights to land to builder/developer

JOINT DEVELOPMENT BY LAND

TIME OF SUPPLY IN CASE OF LAND DEVELOPMENT RIGHTS

RATE OF GST ON CONSTRUCTION OF

The statutory wording is as follows -

NO SEPARATE TAX FOR SUPPLY OF

1. a civil structure or any other original works pertaining to a scheme under

2. a civil structure or any other original works pertaining to the "ln-situ"

4. a civil structure or any other original works pertaining to the "Economically

5. a civil structure or any other original works pertaining to the "houses

6. low-cost houses up to a carpet area of 60 square metres per house in a

7. low cost houses up to a carpet area of 60 square metres per house in a

8. low-cost houses up to a carpet area of 60 square metres per house

AFFORDABLE HOUSING – CBIC PRESS RELEASE DATED 7-2-2018

DEPARTMENT OF REVENUE (TAX RESEARCH UNIT) CLARIFICATION

Sub: Request for clarification to enable availing 8% GST on Affordable Housing-

SI. No. Issues TRU Comments

1. Authenticated document to be A civil structure or any other

2. Requirement of specific Low cost houses up to a carpet

3. Mechanism for reversal of The view taken by CREDAI in their

RELEVANT ADVANCE RULINGS

CGST : Where project 'Prajapati Magnum' undertaken by applicants falls

AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA

Classification of services - Construction services (NR) - Applicant is engaged in