Real Estate – FAQs and Clarifications (Part 4)
We hope you read the 3rd part of our blog on FAQs and clarifications about Real Estate. Presenting the 4th part of the blog, containing a few more questions for your immediate reference.
In case where the development rights are supplied by the land owner to the promoter, under an area sharing arrangement between 1st July 2017 and 31st March 2019, but the allotment of constructed area in an ongoing project is made by the promoter to the land owner on or after 1st April 2019, whether the tax liability, if any, is required to be discharged?
Yes. Tax liability on service by way of transfer of development rights prior to 1st April 2019 is required to be discharged.
Whether the GST is leviable on the output supply of Transferrable Development rights by a developer (usually evidenced by TDR Certificate issued by the authorities). If yes, under which entry and at what rate?
Yes, GST is payable on transfer of development rights by a developer to another developer or promoter or to any other person under reverse charge mechanism at 18% with ITC.
What is the meaning of the term “first occupation”? Whether, in case of an ongoing project, where part occupation certificate has been received in respect of some of the premises comprised in the ongoing project, the promoter is entitled to exercise the option of 1% / 5% (without ITC) or at 8% / 12% (with ITC) available in respect of the balance ongoing project?
The term “first occupation” means the first occupation of the project in accordance with the laws, rules and regulations laid down by the Central Government, State Government or any other authority in this regard. Where occupation certificate has been issued for part of the project but not for the entire project by 31st March 2019, the first occupation of the project shall not be considered to have taken place on or before 31st March 2019 and the project shall be considered ongoing project provided it satisfies the other requirements of the definition of the term ongoing project. promoter shall be entitled to exercise option to pay tax at 1% / 5% (without ITC) or at 8% / 12% (with ITC) on construction of apartments in such project.
In case of a single building registered as two separate projects under the provisions of RERA, whether the developer can consider the entire building as single ongoing project, since all the three conditions to be complied with for classifying a project as an ongoing project can be satisfied only if the entire building is considered as a single project?
Both the projects registered as separate projects under RERA 2016 shall be treated as distinct projects. Both the projects will have to independently satisfy the requirements of the definition of ongoing projects.
Furthermore, if different towers in a single layout are registered as separate projects under the provisions of RERA but where the approvals are common for all the towers, whether the developer can consider entire layout as a single ongoing project?
No. All the towers registered as different projects under RERA shall be treated as distinct projects. Only such towers registered as distinct projects for which commencement certificate has been issued on or before 31st March 2019, construction has started on or before 31st March 2019 and for which apartments have been booked on or before 31st March 2019, but completion certificate has not been issued or first occupation has not taken place by the said date shall be treated as ongoing projects.
Whether TDR purchased on or after 1st April 2019 to be consumed by a developer-promoter in an ongoing project, in respect of which the promoter has opted for the new rate of tax, shall be liable to be taxed at the applicable rate, but limited to 1% or 5% of the unsold area at the time of issuance of completion certificate?
Yes. Portion of such TDR transferred on or after 1st April 2019 which is used in an ongoing project in respect of which the promoter has opted for new rate of tax on construction of apartment at 1% or 5% without ITC which remained un-booked on the date of issuance of completion certificate or first occupation of the project shall be liable to tax at the applicable rate not exceeding 1% of the value in case of affordable residential apartments and 5% of the value in case of other than affordable residential apartments.
What shall be the classification of and rate of tax applicable to works contract service provided by a contractor to a developer or promoter under the new dispensation effective from 1st April 2019 for – a) New project after 1st April 2019 and ongoing projects where option has been exercised for new rate and b) Ongoing projects where option has not been exercised for new rate?
The rate of tax applicable on the work contract service provided by a contractor to a promoter for construction of a real estate project shall be 12% or 18% depending upon whether such work contract service is provided for construction of affordable residential apartments or residential apartments other than affordable residential apartments. Rate of tax applicable on such work contract service provided by a contractor to a promoter on construction of commercial apartments shall be 18% (irrespective of option exercised by developer promoter) and 12% for works contract services of construction of affordable apartments / apartments being constructed under schemes specified therein. In case of works contract services for construction of other apartments, rate of 18% shall be applicable.
Will a project for which multiple completion certificates are received partly before 1st April 2019 and partly after that date, constitute an ongoing project?
Where more than one completion certificate is issued for one project, for definition of ongoing project, completion certificate issued for part of the project shall not be considered to have been issued for the project on or before 31st March 2019 unless completion certificates have been issued for the entire project. Therefore, if completion certificate has not been issued for part of the project on or before 31st March 2019, the project shall still be considered as ongoing project provided other conditions of the definition of “ongoing project” are met.
Stay tuned for the next part of this blog, to be published soon.
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Author: Pramit Pratim GhoshPramit, 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.
Pramit Pratim Ghosh
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