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We hope you read the 4th part of our blog on FAQs and clarifications about Real Estate. Presenting the 5th and last part of the blog, containing the final few questions on the topic.

It is a prevalent practice that more than one commencement certificate is issued by competent authority for single project. If one or two commencement certificates are received by the developer prior to 1st April 2019 and remaining on or after that date, will such a project be considered as an ongoing project?

Where commencement certificate has been issued even for part of the project on or before 31-03- 2019, it shall be treated as an ongoing project provided other requirements of the definition of ongoing project are met.

There are many projects of redevelopment / slum rehabilitation in pipeline as on 1st April 2019. It is possible that in such projects the development rights have been conferred upon the developer and pursuant to which the development process has been initiated such as receipt of commencement certificate, excavation for foundation etc., but booking against units for sale has not been received prior to 1st April 2019. However, allotment of units to the existing dwellers (in respect of free supply units) which will yield no monetary consideration has been done. The current rules require credit of at least one instalment in the bank account prior to 1st April 2019 for a project to be considered as ongoing project. In such cases, will apartments being constructed in the project be deemed to have been booked prior to 1st April 2019, in case development agreement is executed prior to that date? Will such projects shall be considered as an ongoing project?

In case of redevelopment or slum rehabilitation projects, the original inhabitants or the slum dwellers are not required to pay any monetary consideration to the promoter for the residential apartments allotted to them. Therefore, the residential apartments allotted to the original inhabitants in case of redevelopment project or slum dwellers in case of slum rehabilitation or redevelopment project, the requirement that at least one instalment has been credited to the bank account of the promoter shall not be required to be met for such apartments to be considered as having been booked on or before 31st March 2019 provided other requirements for considering an apartment booked on or before 31st March 2019 have been met. The consideration for such apartments is receipt in the form of transfer of development rights from the original inhabitants in case of redevelopment projects or the government in case of slum rehabilitation projects. Hence, the condition relating to credit of at least one instalment in the bank account of the promoter for the apartments being constructed in a slum redevelopment project to have been partly or wholly booked shall be deemed to have been satisfied in order to consider the project as an ongoing project, provided all other conditions for considering an apartment as booked are met in case of apartments allotted to slum dwellers; as there is no cash payment to be made by the slum dwellers.

Can a developer take deduction of actual value of land involved in sale of unit instead of taking deduction of deemed value of land?

No. Valuation mechanism clearly prescribes one- third abatement towards value of land.

How and where the percentage of invoicing is to be taken into consideration while determining quantum of ITC reversal?

The illustrations given in the concerned annexure clearly explain how the provisions relating to percentage of invoicing shall operate. The same may be referred to.

Will exemption granted on transfer of development right or FSI for residential construction and reverse charge mechanism prescribed for payment of tax on TDR, FSI or long term lease (premium) in the new dispensation, be applicable where development rights were transferred by way of an agreement executed prior to 1st April 2019 but consideration, whether in cash or other form, flowed to the land owner, in full or part, on or after 1st April 2019?

The new dispensation has been prescribed for real estate sector vide notifications issued on 29th March 2019. The same are effective prospectively from 1st April 2019. They shall apply only to development rights or FSI transferred on or after 1st April 2019. They shall not apply to development rights transferred by way of an agreement prior to 1st April 2019even if the consideration for the same, in cash or kind, is paid in part or full on or after 1st April 2019.

Land owner being an individual is not engaged in the business of land relating activities and thus whether the transfer of development rights by an individual to a promoter is liable for GST and whether the same will fall within the scope of “Supply”? What is the position of such a transaction, considering amendments recently made?

The term business has been assigned a very wide meaning in the CGST Act and it includes any trade, commerce, manufacture, profession, vacation, adventure, or any other similar activity whether it is for a pecuniary benefit irrespective of the volume, frequency, continuity or regularity of such activity or transaction. Therefore, the activity of transfer of development rights by a land owner, whether an individual or not, to a promoter is a supply of service subject to GST.

In certain projects, developers have started construction on or before 31st March 2019. However, bookings in the project have not started. One of the conditions prescribed for a project to qualify as an ongoing project is that apartments being constructed should have been partly or wholly booked. Whether such project where bookings have not started but construction has started, would be eligible for the new rates of 1% or 5% without ITC?

As per the rules, “project which commences on or after 1st April 2019” shall mean a project other than an ongoing project. A project, in which bookings for the apartments have not started, would not be covered under definition of “ongoing project”. The same would accordingly be treated as a project which commences on or after 1st April 2019 subject to the new rates of 1% or 5% without ITC.

Whether the form as per Annexure IV is to be filed with both the jurisdictional commissioner i.e. Central Tax, State Tax. Whether modification / amendments in such Form are allowed after filing of the form, after 10th May 2019?

No. The form shall be filed manually with the office of the Commissioner in whose jurisdiction the registration of the promoter is assigned. No modification / amendment of the option is allowed in the Form once submitted.

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Pramit Pratim Ghosh

Author: Pramit Pratim Ghosh

Pramit, who has been with Tally since May 2012, is an integral part of the digital content team. As a member of Tally’s GST centre of excellence, he has written blogs on GST law, impact and opinions - for customer, tax practitioner and student audiences, as well as on generic themes such as - automation, accounting, inventory, business efficiency - for business owners.