In some cases, the land owner and builder/developer may have a joint venture for the construction project. In some cases, they may form a separate legal entity or they may operate as UJV (Unincorporated Joint Venture). In such cases, GST will be payable.
Para 2.7 of CBI&C Circular No. 151/2/2012-ST dated 10-2-2012 states as follows –
Joint Development Agreement Model: Under this model, land owner and builder/developer join hands and may either create a new entity or otherwise operate as an unincorporated association, on partnership/joint/collaboration basis, with mutuality of interest and to share common risk/profit together. The new entity undertakes construction on behalf of landowner and builder/developer.
Clarification: Circular 148/17/2011-ST dated 13-12-2011, particularly paragraphs 7, 8, 9 apply mutatis mutandis in this regard.
TIME OF SUPPLY IN CASE OF LAND DEVELOPMENT RIGHTS
Usually, land owner provides land for which he is given some flats/industrial galas etc. Thus, when the builder/developer gets land from the land owner, this can be said to be ‘advance received’ and SGST may become payable immediately.
However, CBI&C, vide its Circular No. 151/2/2012-ST dated 10-2-2012 had clarified that service tax will be payable by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g. allotment letter) – this view has been confirmed in CBE&C Instruction F No. 354/311/2015-TRU, dated 20-1-2016.
This principle has also been confirmed in case of transfer of TDR by land owner to builder/developer in Notification Nos. 4/2018-CT (Rate) and 4/2018-IT (Rate) both dated 25-1-2018.
Thus now it is well settled that GST on such flats given to land owner will be payable only when these flats are handed over to land owner.
Rate Of GST on Construction Of Complex
The general rate of GST on construction and works contract service is 18% (9% CGST plus 9% SGST) or 18% IGST.
However, in case of construction of complex, the builder charges a amount which is inclusive of land or undivided share of land. In that case, the land value will be taken as one third (33.33%) of total amount (i.e. value including land value) and GST is payable on balance amount.
Thus, effectively GST rate is 12% (6% CGST plus 6% SGST) or 12% IGST.
(As per Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate), For 8 types of Affordable housings where the tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST], Effective Rate of 8% after deducting 1/3rd Value for the Land Portion involved)
The statutory wording is as follows –
In case of supply of service specified in column (3), in item (i); sub-item (b), sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item (c) of item (vi), against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply – para 2 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017 as amended w.e.f. 25-1-2018.
The para 2 was reading as follows upto 25-1-2018 – In case of supply of services specified in Sr No. 3(i) of the Table (construction of complex), involving transfer of property in land or undivided share of land, as the case may be, the value of supply of services and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply – para 2 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
Principally, there seems to be no change in earlier para and new para, except that new para covers all low cost housing schemes.
Total Amount:
‘Total amount’ means the sum total of,-
(a) consideration charged for aforesaid service (construction of complex) and
(b) amount charged for transfer of land or undivided share of land, as the case may be, including by way of lease or sub-lease
- Explanation to para 2 of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017. Words in italics inserted w.e.f. 25-1-2018.
No Separate Tax for Supply Of Land Or Undivided Share Of Land As Part Of Composite Supply Of Flats
When a builder sales flat to buyer, he also sometimes transfers to him undivided share of land by way of lease or sub-lease.
In such cases, the value of service for GST is Nil, if the amount charged for such lease or sub-lease is one-third of total amount charged for composite supply or less than one-third of total amount charged
- Sr No. 16(ii) of Notification Nos. 11/2017-CT (Rates) and 8/2017-IT (Rates) dated 28-6-2017 inserted w.e.f. 25-1-2018.
The detailed wording is quite clumsy, but its essence is that such leasing of land may be during
(a) construction of complex
(b) low cost housing, scheme or
(c) residential complex for Government, Local Authority, Governmental Authority or Governmental Entity.
Even otherwise, since supply of flat is a composite contract, there should not be any separate tax on lease of land.
AFFORDABLE HOUSING
As per Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate), following are the 8 types of Affordable housings where the tax rate is 12% IGST [or 6% CGST plus 6% SGST/UTGST], Effective Rate of 8% after deducting 1/3rd Value for the Land Portion involved on composite supply of works contract as defined in section 2(119) of CGST Act:
- a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana [w.e.f. 22-8-2017]
- a civil structure or any other original works pertaining to the “ln-situ” redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) [w.e.f. 25-1-2018]
[The wording during 22-8-2017 to 25-1-2018 was as follows – a civil structure or any other original works pertaining to the In-situ rehabilitation of existing slum dwellers using land as a resource through private participation under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers].
- a civil structure or any other original works pertaining to the “Beneficiary led individual house construction/enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana [w.e.f. 22-8-2017]
- a civil structure or any other original works pertaining to the “Economically Weaker Section (EWS) houses” constructed under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) [this clause inserted w.e.f. 25-1-2018]
- a civil structure or any other original works pertaining to the “houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/Lower Income Group (LIG)/Middle Income Group-1 (MIG-1)/Middle Income Group-2 (MIG-2)” under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) [this clause inserted w.e.f. 25-1-2018]
- low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India [w.e.f. 22-8-2017].
- low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under- (1) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (2) any housing scheme of a State Government [w.e.f. 22-8-2017].
- low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30th March, 2017 [This clause inserted w.e.f. 25-1-2018].
AFFORDABLE HOUSING – CBIC PRESS RELEASE DATED 7-2-2018
In its 25th Meeting held on 18th January, 2018, the GST Council had made several important recommendations for the Housing Sector which have come into force with effect from 25th January, 2018. The recommendations are expected to promote affordable housing for the masses in the country.
One of the important recommendations made is to extend the concessional rate of GST of 12% (effective rate of 8% after deducting one third of the amount charged for the house, flat etc. towards the cost of land or undivided share of land, as the case may be) in housing sector to construction of houses constructed/acquired under the Credit Linked Subsidy Scheme (CLSS) for Economically Weaker Sections (EWS)/Lower Income Group (LIG)/Middle Income Group-1 (M1G-1)/Middle Income Group-2 (M1G-2) under the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana (Urban).
Credit Linked Subsidy Scheme (CLSS) is one of the components of Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY) (Urban). Under this component, subsidy would be provided on home loans taken by eligible urban poor (EWS/LIG/MIG-L MIG-II) for acquisition and construction of house. Credit linked subsidy would also be available for housing loans availed for new construction and for addition of rooms, kitchen, toilet etc, to existing dwellings as incremental housing. The carpet area of houses constructed under this component of the mission would be up to 30 square meters for EWSA, 60 Square Meters for LIG, 120 sqm for MIG I and 150 Sqm for MIG II. The benefit of Credit Linked Subsidy Scheme may be taken by the Economical Weaker sections or Low/Middle Income Groups for purchase of houses under any project. The maximum annual income for eligibility of beneficiaries under the scheme can be up to Rs.18 lakhs. It covers a very large section of population which aspires to own a home.
So far, houses acquired under CLSS attracted effective GST rate of 18% (effective GST rate of 12% after deducting value of land). The concessional rate of 12% was applicable only on houses constructed under the other three components of the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana (Urban), namely (i) ln-situ redevelopment of existing slums using land as a resource component; (ii) Affordable Housing in partnership and (iii) Beneficiary led individual house construction/enhancement. The exemption has now been recommended for houses acquired under the CLSS component also. Therefore, the buyers would be entitled to interest subsidy under the Scheme as well to a lower concessional rate of GST of 8% (effective rate after deducting value of land).
The GST Council has also recommended that the benefit of concessional rate of GST of 12% (effective GST rate of 8% after deducting value of land) applicable to houses supplied to existing slum dwellers under the in-situ redevelopment of existing slums using land as a resource component of PMAY may be extended to houses purchased by persons other than existing slum dwellers also. This would make the in-situ redevelopment of existing slums using land as a resource component of PMAY more attractive to builders as well as buyers.
The third recommendation of the Council is to include houses constructed for ‘Economically Weaker Section (EWS)’ under the Affordable Housing in partnership (PMAY) under the concessional rate of GST of 8% (effective rate after deducting value of land). This will support construction of houses up to 30 sqm carpet area.
The Fourth Recommendation of the Council is to extend the concessional rate of 12% to services by way of construction of low cost houses up to a carpet area of 60 sqm in a housing project which has been given infrastructure status under notification No. 13/06/2009 dated 30th March, 2009. The said notification of Department of Economic Affairs provides infrastructure status to Affordable Housing.
Affordable Housing has been defined in the said notification as a housing project using at least 50% of the FAR/FSI for dwelling units with carpet area of not more than 60 sqm. The recommendation of the Council would extend the
concessional rate of 8% GST (after deducting value of land) to construction of flats/houses of less than 60 sqm in projects other than the projects covered by any scheme of the Central or State Government also.
In addition to the above, in order to provide a fillip to the housing and construction sector, GST Council has decided to give exemption to leasing of land by Government to Governmental Authority or Government Entity. [Government Entity is defined to mean an authority or board or any other body including a society, trust, corporation, (i) set-up by an Act of Parliament or State Legislature; or (ii) established by any Government, with 90% or more participation by way of equity or control, to carry out any function entrusted by the Central Government, State Government, UT or a local authority].
Also, any sale/lease/sub-lease of land as a part of the composite sale of flats has also been exempted from GST. Therefore, in effect, the Government does not levy GST on supply of land whether by way of sale or lease or sub- lease to the buyer of flats and in fact, gives a deduction on account of the value of land included in the value of flats and only the value of flat is subjected to GST.
It may be recalled that all inputs used in and capital goods deployed for construction of flats, houses, etc attract GST of 18% or 28%. As against this, most of the housing projects in the affordable segment in the country would now attract GST of 8% (after deducting value of land). As a result, the builder or developer will not be required to pay GST on the construction service of flats etc. in cash but would have enough ITC (input tax credits) in his books to pay the output GST, in which case, he should not recover any GST payable on the flats from the buyers. He can recover GST from the buyers of flats only if he recalibrates the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-GST price of flats.
The builders/developers are expected to follow the principles laid down under Section 171 of the GST Act scrupulously. The above changes have come into force with effect from 25 January 2018.
RELEVANT ADVANCE RULINGS
- PRAJAPATI DEVELOPERS
CGST : Where project ‘Prajapati Magnum’ undertaken by applicants falls under definition of “Affordable Housing”, applicant’s case is covered under tax rate of 12% under Heading 9954 (Construction Services), (v) (da) of Notification No. 11/2017-Central Tax (Rate) dated 28-6-2017, but benefit of reduced rate would be available to them only in cases of supply effected after 25-1-2018 i.e. date on which Notification No. 1/2018-Central Tax (Rate) was issued and benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq mtrs
AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA Prajapati Developers, In re
B.V. BORHADE AND PANKAJ KUMAR, MEMBER ORDER NO.GST-ARA, NO. 02/2018-19/B-58 JULY 3, 2018
Classification of services – Construction services (NR) – Applicant is engaged in business of construction of residential and commercial complex – Applicant is undertaking development of residential apartments under a project called ‘Prajapati Magnum’ – Whether since project undertaken by applicant falls under definition of ‘Affordable Housing’, applicant’s case is covered under tax rate of 12 per cent, under Heading 9954 (Construction Services) of Notification No. 11/2017 but benefit of reduced rate would be available to them only in cases of supply effected after 25- 1-2018, i.e., date on which Notification 1/2018-Central Tax (Rate) was issued and benefit of this reduced rate would be applicable in case of only those flats which are of carpet area upto 60 sq. mtrs. – Held, yes
- THE IDEAL CONSTRUCTION
GST : Where concessional rate of tax of 12 per cent
on affordable housing project is levied by GST Council, builder or developer having paid GST of 18 per cent or 28 per cent on inputs and capital goods used in construction of flats, will not be required to pay GST on construction service of flats, etc., as they would have enough ITC (input tax credits) in their books to pay output GST
[2018] 97 taxmann.com 316 (AAR – MAHARASHTRA) AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA The Ideal Construction, In re
B.V. BORHADE AND PANKAJ KUMAR, MEMBER
- GST-ARA-01/2018-19/B-109
SEPTEMBER 5, 2018
Classification of services – Construction services (NR) – Applicant, a partnership firm of builders and developers is to undertake an affordable housing project on their land – It seeks advance ruling on what is rate of tax to be levied on sale of flats/units to prospective buyers – According to sub-item (da) of item (v) of Notification No. 1/2018 – Central Tax (Rate) 25-1-2018, low-cost houses up to a carpet area of 60 square metres per house is an affordable housing project which has been given infrastructure status vide notification of Government of India – Whether since project undertaken by applicant falls under definition of ‘Affordable Housing project’ concessional rate of taxes to be levied is 12 per cent (8 per cent GST after deducting value of land) – Held, yes
Section 16 of the Central Goods and Services Tax Act, 2017 – Input tax credit – Eligibility and condition for taking credits (NR) – GST Council has extended concessional rate of 12 per cent (8 per cent GST after deducting value of land) to services by way of construction of low cost houses up to a carpet area of 60 sq. mtrs. in a affordable housing project – Whether, consequently, builder or developer having paid GST of 18 per cent or 28 per cent on inputs and capital goods used in construction of flats, will not be required to pay GST on construction service of flats, etc., in cash as they would have enough ITC (input tax credits) in their books to pay output GST; further, they should not recover any GST payable on flats from buyers – Held, yes
Genius article.