From 01.04.2019 there is drastic change in GST for real estate sector. There is GST of 1%, 5% and 12% depending upon the construction project. In real estate sector, the major challenge is deciding the accurate GST rate. Many buyers of residential and commercial properties remain in confusion due to different GST rates charged by different builders. As well the applicability of GST in real estate sector is also very interesting topic. Many builders are having the questions about the availability of Input Tax Credit and reversal of Input Tax Credit. This article is going to focus about the GST on real estate transactions, impact of gst on real estate and to the point analysis of all crustal questions of builders and buyers. This article will be helpful to all tax professionals like CA, tax practitioners, consultants, and accountants also for better clarity for GST on real estate projects.
GST Applicability on real estate
GST on real estate is applicable when there is services as defined under Entry 5(b) of Schedule-II of CGST Act 2017,
Entry 5(b) of Schedule-II of CGST Act 2017
“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.”
From the above definition one can conclude that GST on real estate sector shall be applicable only if following three conditions are satisfied.
- There is construction of building
- This building must be intended for sale to buyer
- Consideration is received from buyer before issuance of completion certificate (B.U. Permission)
In other words we can say there there is GST on under construction property.
Let’s understand this thing by way of example.
There is one real estate company ABC Construction Pvt Ltd. It stars construction of a building consisting of total 20 flats (means 20 units). Out of the 20 units, 15 units booked before B.U. permission, and consideration wholly or partly received before B.U. Permission. So here GST will be applicable only on 15 units. 5 units which have not been booked till B.U. permission shall not be treated as construction service and therefore GST will not be applicable on that. Kindly note that GST on these 15 units will be applicable on its entire price even part payment is made after B.U. permission.
You can observe that when you go to buy any real estate property which is in ready possession (means B.U permission received), then builder will not collect any GST from you. Reason is that there is no GST if any property in real estate is booked on or after B.U. Permission. If builder collect GST from you for property booked after B.U permission received, then it’s not legally correct.
One another important observation is that if any building is constructed for own purpose, then it will not fall in definition of construction under entry 5b of Schedule –II. Means it is not construction under real estate segment.
For example there is a construction company XYZ Construction. This company enters into contract with ABC Chemicals Pvt Ltd. Land is owned by ABC Chemical Pvt Ltd. Here we can say that this is not a service covered under entry 5(b) of Schedule-II of CGST Act 2017 as the factory is not intended to sell by XYZ construction. XYZ Construction company is just working in the capacity of contractor and doing construction of factory for ABC Chemicals Pvt Ltd. So this service actually covered under Entry 6(b) of Schedule-II of CGST Act 2017 which is works contract service. Kindly note that service covered under entry 5(b) of Schedule –II is also works contract service but its real estate service in the nature and GST rates of real estate will be applicable.
GST Rate on real estate.
There are different GST rates in real estate which are 1%, 5% and 12%. Now the question is that what GST rate will be applicable? GST notification on real estate is 11/2017 Central Tax (Rate) dated 11.06.2017.
The following are factors to decide GST rate on real estate business.
- Project is RREP or REP?
- Project is affordable or non-affordable?
- What is residential and commercial portion of project?
- Is project 100% commercial?
If one knows all above answers then only can decide the GST rate on particular project. So it is very important to know the meaning of all these factors.
What is REP?
REP stands for Real Estate Project.
“Real estate project” means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto.
Important observation in this definition is that if builder intense to sale units of building, then only its REP. In other words if builder wants to keep with him the developed building for his own use, then it is not REP Or as we we have seen in above example XYZ Construction does the construction of factory belonging to ABC Chemicals Pvt Ltd, we can say that XYZ construction is not going to sell factory as it just working in the capacity of contractor, and therefore construction of factory in given case can not be called Real Estate project (REP)
What is RREP?
RREP shall mean a REP in which the carpet area of the commercial apartments is not more than 15 percent of the total carpet area of all the apartments in the REP;
What is affordable Project?
The quest of GST on affordable housing is much more important for buyers of low cost house. That’s why its important to know first about the affordable housing project. A residential apartment in a project having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than forty five lakhs rupees.
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 respective geographical limits prescribed by an order issued by the Central or State Government in this regard;
Note:
Any other amount charged by the builder from the buyer of the apartment including preferential location charges, development charges, parking charges, common facility charges etc shall be included in the gross amount charge.
Importing observation in this definition is that only residential construction portion can be affordable. Commercial portion never can be affordable as the definition for affordable is only for residential construction
GST rates list in real estate.
For projects commenced on or after 01-04-2019
GST rate on real estate notification is 11/2017 Central tax (Rate) dated 28.06.2017. Applicable gst rate on real estate can be better explained by the following table
Table-1 Rate of GST on real estate
| Sr No | Nature of Project | Nature of residential construction | Commercial/Residential Portion | GST Rate |
|---|---|---|---|---|
| 1 | RREP | Affordable | Residential Portion Commercial Portion | 1% 5% |
| 2 | RREP | Non Affordable | Residential Portion Commercial Portion | 5% 5% |
| 3 | REP | Affordable | Residential Portion Commercial Portion | 1% 12% |
| 4 | REP | Non Affordable | Residential Portion Commercial Portion | 5% 12% |
| 5 | 100% Commercial | NA | NA | 12% |
This is current GST rate on real estate that is date of writing this article on 24-08-2022. Kindly note that there is no any GST circular on affordable housing. All there GST rates including GST tax on affordable housing is governed by notification 11/2017 Central Tax (Rate).
How to calculate gst on under construction property with examples?
Examples of ascertaining GST tax rate on real estate or we can say gst rate on real estate developers
Exampe-1
A & Co is having project of three buildings in Ahmedabad. Total carpet are of construction of all residential and commercial units in this project is 10,000 sq. meters, out of that carpet area of all commercial units (shops) is 1300 sq. meters. Price of each such residential units is Rs 44 lakhs including development charges, parking etc. Carpet area of each such residential units is 85 sq. meters.
What will be GST rate on residential units of this project and commercial units of this project?
Answer
This project is RREP.
This project is RREP as carpet area of construction of commercial units is not exceeding 15% (13% in this case) of total carpet area of construction of units of buildings
Residential construction is affordable
As carpet area of residential unit is not more than 90 sq. meters (in current case its 85 sq. meters) and price of residential unit is not more than 45 lakes (in current case its Rs 44 lakes), we can say that it’s affordable project for residential.
Remember, Ahmedabad is non metropolitan city so, max limit for affordable is 90 sq. meters as we have seen above in definition.
GST rate
As this is RREP and residential construction is affordable, GST on residential property is is 1% and gst on commercial property is 5%. Refer Sr. No 1 of Table-1 Here we can say that affordable housing GST rate is 1% for residential and 5% for commercial if project is RREP. (GST rate on affordable housing projects )
Exampe-2
B Ltd is having project of 10 buildings in Delhi. Total carpet are of construction of all residential and commercial units in this project is 50,000 sq. meters, out of that carpet area of all commercial units (shops) is 6,000 sq. meters. Price of each residential units is Rs 43 lakhs including development charges, parking etc. Carpet area of each such residential units is 70 sq. meters.
What will be GST rate on residential units of this project and commercial units of this project?
Answer
This project is RREP
This project is RREP as carpet area of construction of commercial units is not exceeding 15% (12% in this case) of total carpet area of construction of units of buildings
Residential construction is non affordable
As carpet area of residential units is more than 60 sq. meters (in current case its 70 sq. meters) this residential construction is non affordable even its price charged is not exceeding 45 lakhs.
Remember, Delhi is metropolitan city so, max limit for affordable is 60 sq. meters as we have seen above in definition.
GST rate
As this is RREP and residential construction is non affordable GST rate on residential property is 5% and GST rate on commercial property is 5%. Refer Sr. No 2 of Table-1
Example-3
C Ltd is having project of 15 buildings in Surat. Total carpet are of construction of all residential and commercial units in this project is 1,00,000 sq. meters, out of that carpet area of all commercial units (shops) is 16,000 sq. meters. Price of each residential units is Rs 41 lakhs including development charges, parking etc. Carpet area of each such residential units is 87 sq. meters.
What will be GST rate on residential units of this project and commercial units of this project?
Answer
This project is REP
This project is REP as carpet area of construction of commercial units is exceeding 15% (16% in this case) of total carpet area of construction of units of buildings
Residential construction is affordable
As carpet area of residential units is not more than 90 sq. meters (in current case its 87 sq. meters) and price charges is not exceeding 45 lakhs (Rs 41 lakhs in given case).
Remember, Surat is non metropolitan city so, max limit for affordable is 90 sq. meters as we have seen above in definition.
GST rate
As this project is REP and residential construction is affordable, GST rate for residential construction is 1% and for commercial construction is 12%. Refer Sr. No 3 of Table-1. Here we can say that GST rate on affordable housing is 1%. Kindly note that gst tax rate on affordable housing notification is 11/2017 Central Tax (Rate) dated 28.06.2017.
Exampe-4
D Ltd is having project of 20 buildings in Mumbai. Total carpet are of construction of all residential and commercial units in this project is 1,50,000 sq. meters, out of that carpet area of all commercial units (shops) is 23,000 sq. meters. Price of residential each such unit is Rs 43 lakhs including development charges, parking etc. Carpet area of each such residential unit is 85 sq. meters.
What will be GST rate on residential units of this project and commercial units of this project?
Answer
This project is REP
This project is REP as carpet area of construction of commercial units is exceeding 15% (15.33% in this case) of total carpet area of construction of units of buildings
Residential construction is non affordable
As carpet area of residential units is more than 60 sq. meters (in current case its 85 sq. meters) this residential construction is non affordable even its price charged is not exceeding 45 lakhs.
Remember, Mumbai is metropolitan city so, max limit for affordable is 60 sq. meters as we have seen above in definition.
GST rate
As this is REP and residential construction is non affordable GST rate for residential construction is 5% and for commercial construction is also 12%. Refer Sr. No 4 of Table-1
Exampe-5
E Ltd is having project of 3 buildings in Bangalore. All three buildings are commercial. What is GST rate?
Answer
This is 100% commercial project. GST rate is 12% . Refer Sr. No 5 of table -1
For projects commenced before 01-04-2019 and still on going as on 01-04-2019
Kindly note that GST rate in real estate projects before 01-04-2019 were 12 % for both residential and commercial and full ITC was available. As rate changed from 01-04-2019, the government had given two options for such ongoing projects
Option-1 Continue with old GST rate (for that option has to be exercised on or before 20th May, 2019)
Option-2 If Option 1 is not exercised within 20th May, 2019, then new GST rates will be applicable
If option is exercised to pay old GST rate, then 12% GST will be applicable with full ITC availability in all kinds of projects whether residential or commercial. If no such option is excised then new GST rates as mentioned in Table-1 will be applicable
Input Tax Credit in Real Estate
Input tax credit for real estate developers is very important question. Its important to know because ITC is available in only for commercial construction in REP project and 100% commercial projects. Wrong availment of ITC can result in huge litigations with heavy interest and penalty. So everyone should be very careful while availing gst input tax credit in real estate.
Table of Input tax credit availability in real estate
Table-2
| Sr No | Nature of Project | Nature of residential construction | Commercial/ Residential Portion | GST Rate | ITC Available? |
|---|---|---|---|---|---|
| 1 | RREP | Affordable | Residential Portion Commercial Portion | 1% 5% | No No |
| 2 | RREP | Non Affordable | Residential Portion Commercial Portion | 5% 5% | No No |
| 3 | REP | Affordable | Residential Portion Commercial Portion | 1% 12% | No Yes (see note-1) |
| 4 | REP | Non Affordable | Residential Portion Commercial Portion | 5% 12% | No Yes (see note-1) |
| 5 | 100% Commercial | NA | NA | 12% | Yes |
Note-1
Input tax credit is available when GST rate is 12%.If GST Rate is 1% or 5%, then input tax credit shall not be available.
In REP project, GST rate will be 12% in commercial construction.
Now the question is whether input tax credit shall be available or not?
As this project contains both residential and commercial, input tax credit shall be available only to the extent of commercial portion.
ITC attributable to commercial portion shall be calculated in proportion of carpet area of commercial construction to carpet area of total construction.
If anyone wants to know the manner of calculation of ITC availability, then refer Annexure I and Annexure II of Notification 11/2017 Central Tax (Rate)
Reversal of Input Tax Credit
As we have seen above GST will not be applicable if property is booked on or after B.U. Permission.
In other words, when 100% consideration is paid by buyer to the builder after the B.U. Permission, then GST will not be applicable.
Now as we have seen above in Input Tax Credit availability point, ITC is available in REP project for commercial units and in 100% commercial projects. But if any commercial units are not still booked as on B.U permission, the ITC already taken will have to be reversed in the manner prescribed in rule 42 of CGST Rules 2017.
Example
A Construction Ltd constructed a 100% commercial building consisting 50 offices. Out of 50 offices, 10 offices remain unsold (we can say not booked) as on date of B.U. Permission. Here GST will be applicable only on 40 units. But A Construction Ltd has taken ITC of all 50 units. So A Construction Ltd will have to reverse ITC for 10 units in proportion of carpet area of 10 units with carpet area of 50 units. Detailed manner of calculation has been explained in Rule 42 of CGST Rules 2017.
Note:
Kindly note that ITC reversal Rule42 & 43 given. Rule 42 is for reversal of ITC of goods and services and Rule 43 is for reversal of ITC of capital goods. As well there will be interest on reversal of itc under gst. Rate of interest on reversal of input tax credit under gst is 18%. Earlier it was 24%, but its now 18% as per the amendment in July 2022 and this amendment has been made retrospectively from 01.07.2017.
GST on affordable housing 2022.
Impact of Changes in works contract service rates in real estate Sector 2022
There is change in works contract service rates from 18.07.2022. And changes in works contract services is going to impact affordable housing projects in real estate sector. GST on affordable housing 1%. Many works contract services are used in real estate sector. Many works contract services rates have now been brought to 18% GST from 12%. I have already written an detailed article about GST Rates on works contract services w.e.f. 18.07.2022. To read that article click here.
Therefore input tax cost of real estate sector is badly going to be impacted in real estate sector. As we have seen above real estate sector can not avail ITC when GST rate is 1% or 5%.
GST on affordable housing notification is 11/2017 Central Tax (Rate) daetd 11.06.2017
Lets understand this in table form
Table-3
| Nature of Input in real estate industry | GST rate before 18.07.2022 | GST Rate from 18.07.2022 | ITC availability in real estate Sector | Extra Cost to Real Estate Industry |
|---|---|---|---|---|
| Labor contract services in affordable housing projects | 12% | 18% | No | 6% |
| Lift installation in affordable housing projects | 12% | 18% | No | 6% |
| Any other works contract services in affordable housing projects | 12% | 18% | No | 6% |
As we can see in the table, input tax cost has gone up to the extent of 6% due to extra GST cost in works contract input services. Kindly note that rate of GST on affordable housing is 1% for residential property and for commercial it is 5% in RREP project. GST on affordable housing notification is 11/2017 Central Tax (Rate) dated 28.06.2017. So in this scenario, input tax credit will not be available, and therefore this extra GST 6% on input services will have to be born by builders.
So this position of gst on affordable housing projects will ultimately bring burden on real buyers of the property as builders will raise the price of property. Obviously builder will not bear such extra cost, they will defiantly recover from buyers by increasing the price of the property.
So on one side government is declaring the benefits of only 1% GST on affordable housing (gst rate on affordable flats) and on the other side GST on works contract services for affordable projects has been increased and its ultimately going to impact to buyers of affordable property.
FAQs
Is GST applicable on real estate?
If any property for sale is booked and part or full payment for such property is received before the issue of completion certificate of construction (B.U.Permission), then GST is applicable on total amount of property even if part payment is received after the issue of certificate of construction completion.
What is the GST rate on real estate?
GST on real estate are as under
In RREP project, 1% GST on affordable residential property, 5% GST on non affordable residential property and 5% GST on commercial property.
In REP project, 1% GST on affordable residential property, 5% GST on non affordable residential property and 12% GST on commercial property.
In 100% commercial project, 12% GST on commercial property.
If one wants to know what is meaning of REP, RREP , affordable property, then read this entire article. Readers will get 100% clarity.
How do you calculate GST on 2022 flat?
For example property details is as under
Basic value of property is 36,00,000
(1200 sq feets X price/sq feet Rs 3000)
Municipal charges Rs 1,00,000
Parking charges Rs 50,000
Maintenance deposite Rs 50,000
Stamp duty Rs 2,16,000
(6% of basic cost)
This property is non affordable as its 111 sq meters (1200/10.76). So GST will be 5%
Now this GST 5% will be calculated as under
Basic Price Rs 36,00,000
Add
Municipal Charges Rs 1,00,000
Parking charges Rs 50,000
——————-
Total Rs 37,50,000
GST Rs 1,87,500
(5% X37.50 lakhs)
GST on maintenance deposit shall not be applicable as it is exempt up to Rs 7500 per month per member as per Notification 12/2017 Central Tax (Rate)
GST on stamp duty will not be applicable
There are some views that GST not applicable on any extra charges, but this issue is not free from litigations.
Another view is that on extra charges, GST will be 18%.
But as per my views, this is composite supply of services of construction and principle supply is construction, therefore GST rate of construction shall be applicable even in additional charges.
How can I save GST on property purchase?
If any person purchases the ready made property (means B.U. permission received), then GST will not be applicable whether such property is residential or commercial.
Is GST applicable on resale property?
Answer is No. Once completion certificate of construction is received in any property, GST will not be applicable on its first sale by builder to buyer and even in resale by owner to another buyer.
GST on real estate PDF
If reader of this article wants the detailed PDF file on real estate, then please mention in comment below. I will give link to download PDF file in this article.
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