GST on Under-Construction Flats

Introduction

When the GST was introduced, there was considerable ambiguity surrounding its application to the real estate sector. Following persistent appeals from stakeholders, the government provided some clarification in 2019.

There are two types of apartments in the Real Estate sector:

1. Residential apartment
2. Commercial apartment

Residential apartments are further categorized into two distinct groups:

a) Affordable Apartments
b) Other than affordable apartment

a) Affordable Apartment:

Particulars	Conditions	sq.meter	Gross amount upto ( In Rs.)
NON metropolitan cities	Apartment having carpet area upto	90	45 Lacs
Metropolitan cities	Apartment having carpet area upto	60	45 Lacs

Note: Gross Amount will include all the amounts paid like Preferential Location charges, Development charges, Parking charges, and common facility charges.

b) Other than Affordable Apartment:

These apartments will be those that fall outside the classification of affordable housing.

Similarly, in the Real Estate sector, projects also fall into two categories:
1. Real Estate Project
2. Residential Real Estate Project

1. Real Estate Project: Real Estate projects are defined as those where the commercial apartment's carpet area exceeds 15% of the total carpet area.

2. Residential Real Estate Project: These projects are where the carpet area of commercial apartments amounts to 15% or less of the total carpet area.

Rate of Tax & ITC Availability

Particulars	Effective Tax rate after 1/3rd  deduction	GST Payment  mode
Affordable Residential houses	1% without ITC	Electronic Cash ledger
Other than affordable house	5% without ITC	Electronic Cash ledger
Sale of under construction commercial units(in RREP up to 15% of total carpet area	5% without ITC	Electronic Cash ledger
Sale of under construction commercial units(in REP)	12% (proportionate ITC)	Cash/credit
Sale of completed flats Post Completion Certificate	Nil	NA
1.     If the apartments are sold at a reduced rate (either 1% or 5%), then ITC will not be available in that scenario. 2.     If apartments are sold at a reduced rate (either 1% or 5%), then the output tax liability will be settled solely in cash. 3.     Reverse liability in case of purchase from an unregistered person.

 

Several additional points have been incorporated into the new scheme.

1. Under the new scheme, it is permissible to procure up to 20% of the total input or input services value from an unregistered person. This implies that 80% of the total input or input services value must be procured from a registered person, eliminating the requirement to procure the entire 100% from a registered person.

For this calculation, the value of the following services has been omitted:

• Grant of developmental rights
• Long-term lease of land
• Floor space index
• Value of electricity
• Value of high-speed diesel
• Motor spirit and natural gas

2. If purchases exceed 20% from an unregistered person, tax will need to be paid on it through a reverse charge mechanism. Under reverse charge, the tax rate applicable will be 18%.

3. For cement procurement, the 80:20 benefit does not apply, necessitating the purchase of cement solely from registered suppliers. A reverse charge tax rate of 28% will be applicable on cement purchases.

4. The new scheme will apply to all new projects commencing from 1st April 2019 onwards.

FAQ’s

Q1. What is the GST on flat/house purchase?
Ans. GST is applicable on under-construction flats at a rate of 1% GST for affordable housing and 5% GST for non-affordable housing without input tax credit.

Q2. Is GST applicable on apartments?
Ans. GST applies to the purchase of under-construction properties such as flats, apartments & bungalows. For properties categorized as affordable housing, the GST rate is 1%. For non-affordable housing properties, the GST rate is 5%.

Q3. What is the GST on flats priced below 45 lakhs?
Ans. Under the Affordable Housing Scheme, for flats priced below 45 lakhs and with an area below 90 square meters, the GST rate on such under-construction flats is 1%.

Q4. How to avoid GST on flat purchase?
Ans. Avoiding GST can be achieved by opting for ready-to-move-in properties or resale properties, as GST is mainly imposed on under-construction properties.

Q5. What is the GST on the construction of residential property?
Ans.The GST rates of 1% and 5% without Input Tax Credit (ITC), effective from April 1, 2019, are applicable to the construction of residential apartments in a project that begins on or after April 1, 2019.

1% GST- These GST rates apply to affordable housing projects, defined as those with a carpet area up to 60 square meters in metropolitan cities and 90 square meters in cities or towns other than metropolitan cities, where the gross amount charged by the builder does not exceed forty-five lakh rupees.

5% GST- It is applicable on non-affordable Residential housing projects.

Q6. Is GST applicable on resale flats?
Ans. GST is not applicable to the sale of resale flats since they are classified as ready-to-move-in properties.

Q7. Is GST applicable on sale of fully constructed Flats or houses?
Ans. Construction of a complex, building, civil structure, or any part thereof, including those intended for sale to buyers, either wholly or partly, where the entire consideration has been received after the issuance of the Completion certificate by the competent authority or after its first occupation, whichever occurs earlier, is not considered a supply of goods or services under GST. Consequently, the sale of constructed flats is not subject to GST.

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