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Home buyers to pay higher GST on balance payment even if occupancy certificate is issued before April 1
May, 16th 2019

If a home buyer has booked a flat and the occupancy certificate for it has been issued before April 1, but he still has some payment due towards the purchase, then he will not get the benefit of lower Goods & Services Tax (GST).

The Finance Ministry has made this clear in the second set of Frequently Asked Questions (FAQs) for GST on real estate.

Based on the decision of the GST Council, all the new and ongoing real estate projects (for affordable and non-affordable residential houses) will attract GST at the rate of 1 per cent and 5 per cent. There is also a one-time option for the developers, which can be exercised till May 20, to opt for old rate (effective rate of 8 per cent for affordable and 12 per cent for non- affordable under construction flats). However, if a promoter or builder does not exercise the option in the prescribed form, it shall be deemed that he has opted for new rates.

Also read: Home buyers have no say in choice of GST rate: FinMin

To a question on GST rate applicable on projects in respect of which occupancy certificate has been issued prior to April 1, 2019, but the balance payments are pending, it said "Time of supply of the service by way of construction of apartments in such projects falls prior to April 1, 2019 and accordingly the rates as existed prior to April 1 would apply to such balance demands."

It means effective rate would be 8 per cent for affordable housing and 12 per cent for the other.

Reverse charge mechanism
The FAQ also made it clear that GST is payable on Reverse Charge Mechanism (RCM) even for TDR (Transfer of Development Rights) from unregistered landowners and the responsibility will be on the promoters. This means, the promoters may deduct tax component from the payment made to the land owners.

On the applicability of GST in case of redevelopment or slum rehabilitation project, (new or an existing project) where the constructed units supplied to existing occupiers by the developer free of monetary consideration, it said “units supplied free of cost also attract GST as their consideration is not money but TDR/ FSI (Floor Space Index) or rights related to land on which construction takes place.”

There is a condition under the new regime for availing lower tax — 80 per cent of inputs and input services should be procured from a registered person. Now the issue was whether expenditure such as salaries, wages, etc will be included under input services for considering 80 per cent criteria. To this, the FAQ said that services by an employee to the employer in the course of or in relation to his employment are neither a goods nor a service Therefore, salaries and wages paid by promoter to his employees will not be relevant for the minimum purchase requirement of 80 per cent.

The FAQ also clarified on the valuation issue of TDR. “Value of TDR, shall be equal to the amount charged by the promoter for similar apartments from the independent buyers booked on the date that is nearest to the date on which such development rights or FSI is transferred by the land owner to the promoter,” it said.

Abhishek Jain, Tax Partner at EY, applauded the pro-activeness of this Government in issuing comprehensive clarifications for the real estate sector. “Clarifications on some technical ambiguities like non-applicability of new rates for projects completed before April, 2019, valuation of TDR, etc should help resolve some involved issues for this sector,” he said.

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