Disclaimer : Analysis has been done based on press release came out of 33rd GST Council meeting. We have seen the history of GST where the wordings of press release differ from respective notification. One has to wait for notification for authentic reading. Authors of this article are not responsible for any decision taken based on this document.
(1) Rates are revised w.r.t. residential properties only (1% without ITC for affordable, 5% without ITC for non affordable). Kindly note that there is no change in rate w.r.t. commercial properties. Moreover, these are effective rates, which means it will be applied to the total amount charged and not on 2/3 portion of total amount charged.
One may note that press release is not talking about the rate of inward supply of works contract to builder w.r.t. construction of residential property. It seems that such supply will be levied as per earlier position. Let’s wait for the notification to have the clarity.
Issue arises how ITC shall be availed in cases where the subject matter is partially residential and partially commercial project because residential properties are charged without ITC (1%/5%), whereas commercial properties are charged without restricting ITC. It will emerge new issues for builders.
It will bring another transitional phase for builders. Few instances can be as below:
| (a) | Where properties are under construction out of which few are sold on or before effective date (i.e. 01.04.2019 to be notified) and few are sold post such effective date. How ITC/ ITC reversal shall be dealt with in such cases? |
| (b) | Where the part of the tax is levied (on account of advances/demand as per completion stage on booking of unit) before effective date and part of the tax to be levied post the effective date. How the tax liability shall be determined on the entire unit? It is also noticeable that meaning of affordable housing is different before and after the effective date. |
| (c) | What will be the fate of ITC remaining as on 31.03.2019? |
Note: Residential house/flat shall be affordable house/ flats based on below conditions
| City | Conditions |
|---|---|
| For Metropolitan city/ town | First Condition : Carpet area of upto 60 sqm in metropolitan cities / towns+
Second condition : having value upto INR 45 lakhs Implications : In citites like metro, rarely the units are sold on below INR 45 lakhs then this will be out of the definition of affordable housing. It is also amazing to note that in first condition the criteria of carpet area is kept different in metropolitan city and non- metropolitan city but value of INR 45 lakhs is kept same. |
| Meaning of metropolitan city/ town is different. Here for this purpose , metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR). As per the 2011 census, we have 46 metropolitan cities in India but here it covers limited cities/ towns | |
| Non-metropolitan city/ town | First Condition : Carpet area of upto 90 sqm in non-metropolitan cities/towns
+ Second condition : having value upto INR 45 lakhs. |
| So far as value of INR 45 lakhs is concerned, one may understand that this value is exclusive of GST and not inclusive of GST. So one has to plan properly where price is agreed inclusive of facilities of club house etc, as pricing of such facilities being part of the value may keep such housing units out of the definition of affordable housing in particular transactions. (Say value of flat is INR 46 lakhs (inclusive of club facilities) and say here, club facilities having worth of INR 2 lakhs. Need of reviewing the agreement and prospective agreements arise here.) | |
(2) ITC reversal will be a challenge, as any rate which is subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken shall also mean as if supply of such service is an exempt supply and which will attract ITC reversal related provisions (i.e. Sec 17(2), Sec 17(3), Rule 42, Rule 43). For the ready reference the excerpt from Notification 11/2017- CT(R) is given as under:
Explanation 4 of NOTIFICATION NO. 11/2017-CENTRAL TAX (RATE), DATED 28-6-2017.
Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that,—
| (a) | credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and |
| (b) | credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder. |
(3) Press release also states that tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable.
Though post this amendment, issues relating to development rights and one time lease payment will be limited to non residential properties but in cases where the project is partially residential and partially commercial, what would be the fate of this exemption. Clarity is expected from the notification.
Also one may note that in case of JDA, buyer of residential properties will face the double costing due to the tax implication as below:
| First Transaction : | Developer will charge tax from landowner. |
| Second Transaction : | Landowner will again charge tax from buyer whereas he is not eligible for ITC on such residential properties received from developer. So eventually buyer will face two times cost of tax in cases of JDA. |
(4) Section 14 and Section 171 (anti profiteering will again come into the picture due to changes in output tax rate and input tax credit both). Both of the sections are reproduced here for the ready reference.
| Section 14 of CGST Act: Change in rate of tax in respect of supply of goods or services. | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Notwithstanding anything contained in section 12 or section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely:—
Provided that the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax. Explanation.—For the purposes of this section, “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier. |
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| Section 171 : Anti-profiteering measure | ||||||||||||||||||||||
| 171(1) : Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.
172(2) : The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. 172(3) : The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed. |
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Issues are endless in real estate sector so far as indirect taxation is concerned. Let’s wait for the clarity. India is the country of high optimism!!