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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
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
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GST for Builders and Developers CA Yashwant Kasar
INTRODUCTION
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GST for Builders and Developers CA Yashwant Kasar
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'.
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GST for Builders and Developers CA Yashwant Kasar
CONSTRUCTION OF RESIDENTIAL,
COMMERCIAL OR INDUSTRIAL
COMPLEX
As per para 5(b) of Schedule II of CGST Act, following is 'supply of service'
Residential Complex:
"Residential complex" means any complex comprising of a building or buildings,
having more than one single residential unit
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GST for Builders and Developers CA Yashwant Kasar
- 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.
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GST for Builders and Developers CA Yashwant Kasar
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.
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.
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GST for Builders and Developers CA Yashwant Kasar
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After giving such so called 'free' flats, remaining flats are sold by
builder/developer to others for cash.
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GST for Builders and Developers CA Yashwant Kasar
GST should be payable in respect of free flats/shops given to the land owner.
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GST for Builders and Developers CA Yashwant Kasar
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.
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.
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GST for Builders and Developers CA Yashwant Kasar
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).
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GST for Builders and Developers CA Yashwant Kasar
section 15 of CGST Act and provisions of rules 27 to 30 of CGST Rules - rule 31
of CGST and SGST Rules, 2017.
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GST for Builders and Developers CA Yashwant Kasar
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.
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GST for Builders and Developers CA Yashwant Kasar
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.
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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.
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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.
(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 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
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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.
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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.
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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:
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]
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GST for Builders and Developers CA Yashwant Kasar
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
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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.
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GST for Builders and Developers CA Yashwant Kasar
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
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GST for Builders and Developers CA Yashwant Kasar
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
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GST for Builders and Developers CA Yashwant Kasar
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].
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GST for Builders and Developers CA Yashwant Kasar
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).
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GST for Builders and Developers CA Yashwant Kasar
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.]
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GST for Builders and Developers CA Yashwant Kasar
1. PRAJAPATI DEVELOPERS
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GST for Builders and Developers CA Yashwant Kasar
NO. GST-ARA-01/2018-19/B-109
SEPTEMBER 5, 2018
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 !
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