Of late, several issues have been raised regarding the new GST rate structure notified for the real estate sector effective from 1st April 2019. In our next set of 5 blogs, we intend to share some FAQs and clarifications, for easy understanding of all concerned stakeholders in the real estate industry.

What are the rates of GST applicable on construction of residential apartments?

With effect from 1st April 2019, the effective rate of GST applicable on construction of residential apartments by promoters in a real estate project are as under:

  • Construction of affordable residential apartments – 1% without ITC on total consideration
  • Construction of residential apartments other than affordable residential apartments – 5% without ITC on total consideration

The above rates are applicable to construction of residential apartments in a project which commences on or after 1st April 2019 as well as in on-going projects. However, in case of on-going projects, the promoter has an option to pay GST at the old rates, i.e. at the effective rate of 8% on affordable residential apartments and effective rate of 12% on other than affordable residential apartments and consequently, can avail permissible credit of inputs taxes. In such cases the promoter is also expected to pass the benefit of the credit availed by him to the buyers.

What is an affordable residential apartment?

Affordable residential apartment is a residential apartment in a project which commences on or after 1st April 2019, or is an ongoing project in respect of which the promoter has opted for new rate of 1%, having a carpet area up to 60 sq. metres in metropolitan cities and 90 sq. metres in cities or towns other than metropolitan cities, and the gross amount charged for which, is not more than INR 45 lakhs. In an ongoing project in respect of which the promoter has opted for new rates, the term also includes apartments being constructed under the specified housing schemes of Central or State Governments. It is to be noted that cities or towns in the notification shall include all areas other than metropolitan cities as defined, such as villages. Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with their geographical limits prescribed by Government.

What is an on-going project?

A project which meets the following conditions shall be considered as an ongoing project:

  • Commencement certificate for the project, where required, has been issued by the competent authority on or before 31st March 2019, and it is certified by a registered architect, chartered engineer or a licensed surveyor that construction of the project has started (i.e. earthwork for site preparation for the project has been completed and excavation for foundation has started) on or before 31st March 2019
  • Where commencement certificate in respect of the project, is not required to be issued by the competent authority, it is to be certified by any of the authorities specified above, that construction of the project has started on or before the 31st March 2019
  • Completion certificate has not been issued or first occupation of the project has not taken place on or before the 31st March 2019
  • Apartments of the project have been, partly or wholly, booked on or before 31st March 2019.

Does a promoter or a builder has option to pay tax at old rates of 8% & 12% with ITC?

Yes, but such an option is available in the case of an ongoing project. In case of such a project, the promoter or builder has option to pay GST at old effective rate of 8% and 12% with ITC. To continue with the old rates, the promoter / builder must exercise one-time option in the prescribed form and submit the same manually to the jurisdictional Commissioner by the 10th May 2019. However, in case where a promoter or builder does not exercise option in the prescribed form, it shall be deemed that he has opted for new rates in respect of ongoing projects and accordingly new rate of GST i.e. 5% / 1% shall be applicable and all the provisions of new scheme including transitional provisions shall be applied. There is no such option available in case of projects which commence on or after 1st April 2019. Construction of residential apartments in projects commencing on or after 1st April 2019 shall compulsorily attract new rate of GST at 1% or 5% without ITC.

What is the rate of GST applicable on construction of commercial apartments (shops, godowns, offices etc.) in a real estate project?

With effect from 1st April 2019, effective rate of GST, after deduction of value of land or undivided share of land, on construction of commercial apartments (shops, godowns, offices etc.) by promoter in real estate project are as under:

  • Construction of commercial apartments in a Residential Real Estate Project (RREP), which commences on or after 1st April 2019 or in an ongoing project in respect of which the promoter has opted for new rates effective from 1st April 2019 – 5% without ITC on total consideration
  • Construction of commercial apartments in a Real Estate Project (REP) other than Residential Real Estate Project (RREP) or in an ongoing project in respect of which the promoter has opted for old rates – 12% with ITC on total consideration

What is a Residential Real Estate Project?

A “Residential Real Estate Project” means a “Real Estate Project” in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the project.

What are the criteria to be used by an architect, a chartered engineer or a licensed surveyor for certifying that construction of the project has started by 31st March 2019?

Construction of a project shall be considered to have been started on or before 31st March 2019, if the earthwork for site preparation for the project has been completed, and excavation for foundation has started on or before the 31st March 2019.

Does a promoter / builder have to purchase all goods and services from registered suppliers only?

A promoter shall purchase at least 80% of the value of input and input services, from registered suppliers. For calculating this threshold, the value of services by way of grant of development rights, long term lease of land, floor space index, or the value of electricity, high speed diesel, motor spirit and natural gas used in construction of residential apartments in a project shall be excluded.

Stay tuned for the next part of this blog, to be published soon.

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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.