Uncharted Aspects in GST for CAs in Real Estate Sector�

CA Mohit Gupta

(B. com (H), CA, LLB)

Anivesh Legal Consultants

Contact No. +91 9717587750

Email: mohit.gupta@aniveshgroup.com

History

K Raheja and L&T

Taxability provisions

Section 7(1A)

• Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

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Para 5(b) of Schedule II

• Construction of a complex, building, civil structure or 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, treated as supply of services.

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Para 5 of Schedule III

• Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Meaning of First Occupation?

Taxability provisions

Meaning of First Occupation?

FAQ: What is the meaning of the term “first occupation” referred to in clauses (i) to (id) of Entry 3 of Notification No. 3/2019?

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Ans: The term “first occupation” appearing in Schedule II para 5 (b) and in notification No. 11/2017 – Central Tax (Rate) dated 29-03-2019 means the first occupation of the project in accordance with the laws, rules and regulations laid down by the Central Government, State Government or any other authority in this regard.

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[F. No. 354/32/2019-TRU]

RATE OF TAX ON COMMERCIAL AND RESIDENTIAL UNITS W.E.F. 01.04.2019

Real Estate Sector under GST

Snapshot of New Rates

• Residential apartment - Apartment intended for residential use as declared in RERA.
• Commercial apartment -Apartment other than residential apartment.
• Affordable residential apartment – Gross amount charged less than ₹45,00,000 having carpet area
• up to 90 sqm in non-metropolitan cities/towns
• upto 60 sqm in metropolitan city

Conditions for new rates

TAXABILITY OF VARIOUS CHARGES

Rates of Tax on Different Charges

Taxability of Plots

• Sale of plots with common amenities
• Common amenities
• It includes compound wall, main entry gate, internal plot separation walls, drainage system, water and electricity connection , etc.
• licence issued by concerned authority
• common area is developed as per condition of licence
• the agreed part of common area is transferred to concerned authority

Taxability of Plots: Way forward

Single Pricing:

• Cost of land and cost of amenities shall be included within a single price.

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Separate Pricing:

• Cost of land and cost of amenities charged separately.

Time of supply and invoice

Time of supply – Section 13

Earliest of the following dates:

1. date of issue of invoice, if issued within prescribed period [30 days] or date of receipt of payment, whichever is earlier; or
2. date of provision of service, if invoice not issued within prescribed period [30 days] or date of receipt of payment, whichever is earlier; or
3. date on which recipient shows receipt of services in his books of account, where clause (a) or (b) do not apply:

Due date of invoice – Section 31(5)

In case of continuous supply of services:

1. Where due date of payment ascertainable from contract: On/before due date of payment
2. Where due date of payment not ascertainable from contract: Before/at time of payment
3. Where payment is linked to completion of an event: On/before completion of event.

Cancellation of flats

Circular No 188/20/2022 GST dated 27th Dec 2022

• Developer cannot issue credit note due to time limit of Section 34
• Unregistered person to file refund under section 54
• New functionality on GST portal for URD persons to take temporary PAN based registration and apply for refund with document as per Statement 8 (sub-rule (2) of rule 89)
• URD person to select same state/UT where his/her supplier is registered.
• Date of issuance of letter of cancellation of contract/ agreement for supply by the supplier – Relevant date

Joint Development agreement

What is JDA

Contribution of land: Landowner contributes his land for the construction of a real estate project

Developer’s responsibility

• Development of property
• obtaining approval
• performing legal formalities
• marketing the project

Developer’s right to sell

• It gives developer the rights to sell
• register regret portions of land with respective undivided shares by way of flats to other buyers

Power of attorney

developer undertakes the responsibility for the development of property, obtaining approvals, performing legal formalities and marketing the project.

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Not defined anywhere

History of taxability

Not taxable

Up to 01.07.2012

• Taxable
• Not specifically mentioned
• Forward charge

01.07.2017 to 31.03.2019

01.07.2012 to 30.06.2017

Not taxable.

‘Immovable property’ excluded. DLF judgment

After 01.04.2019

• Taxable
• Specifically mentioned
• Reverse charge

Development Rights – Immovable Property ?

• Shakti insulted wires v. JCIT

It was held that development rights are embedded in the ownership of land only. these were valuable rights inherent in the ownership of land.

• Chedda Housing Development Corporation v Bibijan Sheikh Farid [Bom HC]

It was held that TDRs being benefit arising out of land must be held to be immovable.

• Sadoday Builders Pvt ltd. v. joint charity commissioner [Bom HC]

It was held- s.36(1)(c) Of Bombay public trusts act, 1950 necessitates taking permission of charity commissioner for sale of immovable property, therefore TDRs are benefits arising out of land and must be considered as immovable property. the sale of such rights requires permission of commissioner under the said provision.

Type of JDAs

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Type of JDAs

Jurisprudence on flats allotted to landowner

• Vasanta Green projects [Tribunal – pending before SC] - ST not leviable on construction services to landowner
• N Bala Baskar (SC), LCS City Makers (P) Ltd. (Tribunal) and CBIC Circular No. 151/2/2012 – ST dated 10.02.2012 - ST leviable on construction services to landowner
• GST AAAR Karnataka in case of Maarq Spaces Pvt. Ltd. - GST leviable on construction services to landowner

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Case study

• A is a landowner
• B is a developer
• A & B enter into JDA for development of A’s land of 10 acres. A’s share is 40%.
• B constructed 100 units worth Rs. 1,00,000/- each – Total revenue is Rs. 1 crores. 15 units are commercial.

RREP (Revenue share)

* Rs. 40 lakhs * 15/100 = Rs. 6 lakhs * 18% = Rs. 1,08,000/-.

Subject to maximum - 1/5% of unit value i.e. 5% * 15 lakhs – Rs. 75,000 /-.

RREP (Area share)

Construction of building in consideration of part floors?

Re-development of existing property

• Complex exists with multiple owners
• Building getting old or FSI increased substantially
• Owners’ agreement with developer to redevelop the flats in lieu of giving extra flats to developer
• Developer can sell the extra flats to new buyers
• Developer may also pay certain amount/rent /other payments to owners

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Other issues

• Unsold units allocated to landowner in case of revenue share agreement
• No exemption for commercial apartments in RREP
• ITC availability to landowner and method of utilizing such ITC
• Reconciliation of books of accounts with CRM
• Projects to be seen RERA registration wise

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Other issues

• Whether exempt services covered under 80% threshold
• Whether area share given to landowner counted for TDR exemption?
• Utilisation of RCM ITC by developer
• Purchase of TDR for further sale

Implications on landowners under JDAs�

Implications on Landowner

Note: It has been assumed that development rights have been transferred on or after 01.04.2019

Reversal of ITC��

Case study

Estimated

Case study

Initial ITC reversal

Actual

Case study

Final ITC reversal

Case study

• A is a landowner
• B is a developer
• A & B enter into JDA for development of A’s land of 10 acres. A’s area share is 40%.
• B constructed 100 units worth Rs. 1,00,000/- each – and kept 60 units and t/f 40 units to A.

History of taxability

Landowner

Developer

Development rights – 40 units * 1 lacs = Rs 40 lacs

• Residential before OC/CC - 40 L * 42/60 = 28 lacs
• Residential after OC/CC - 40 L* 9/60 = 6 L * 18% = 1.08 L or 15 L *5% = 75K
• Commercial - 40 L * 9/60 = 12 lacs = 6 L * 18% = 1.08 L

Construction services of 40 flats – 2 lacs ITC

Before OC /CC (25)

After OC /CC

(15)

ITC eligible – 2 lacs*25/40 = 1.25 lacs

Other issues

• Movement of material in projects (T4)
• Movement of machines in projects (remaining amt can be used in other projects)
• No reversal on unbooked flats (Alembic ltd – CESTAT)
• ITC on services availed after OC/CC
• ITC on flats cancelled after OC/CC
• ITC on scrap sold

Retention Money – GST implications

Non-payment of consideration within 180 days

Section 16(2) –Where a recipient fails to pay to the supplier of goods and services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply of goods or services along with tax payable thereon, within a period of one hundred and eighty days from the date of issue of invoice by the supplier the amount equal to input tax credit availed by the recipient shall be added to his added to his output tax liability, along with interest thereon paid by him along with interest payable under section 50, in such manner as may be prescribed.

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• The recipient shall be entitled to avail input tax credit on payment made by him of the amount towards the value of supply of goods and services of both along with tax payable thereon.
• What does failure to pay mean ?
• What if contract term provide that payment is to be made within 200 days from the date of issuance of invoice ?

Retention Money: Way Forward

Accounting adjustment:

Disclose the performance/retention amount as performance guarantee from supplier to company instead of showing it as payable to the vendor.

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Confirmation/acknowledgment from supplier:

Letter of acknowledgment to be taken from the supplier with respect to receipt of the payment on the invoices raised by the supplier.

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Change in contractual clauses:

Contractual clauses need to be re-drafted so that retention money is treated as a security deposit and adjusted with invoice amount.

Assessment, audit and review

• Form for opting old regime not filed
• Final carpet area of commercial project is more than 15%
• Project wise accounting
• Flats booked before 1^st April 2019 but cancelled after 1^st April 2019
• Multiple proceedings by authorities
• Govt services RCM

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GST return filing

Revenue booked in financials as per AS/IND AS – No link with tax invoice/achievement of milestone

Example: Mr. B is a developer with 100 flats (all booked) of Rs. 1 crore each. 10% construction milestone (Rs. 10 lacs) is completed for all flats.

• Mr. B raises 100 invoices of Rs. 10 lacs each – To be shown in B2C/B2B
• For 80 flats, amount duly received by B
• For 10 flats, Mr. B receives extra Rs. 5 lacs (above 10 lacs) - To be shown in advances. At time of next invoice, to be shown as advance adjusted.
• For 10 flats, no amount received by Mr. B
• For Rs. 1,000 received extra, TOS not on receipt on advance.

Disclosure in GSTR 9 and 9C

• Revenue booked in financials – 15 crores
• 100 invoices raised of Rs. 10 lacs each – To be shown in B2C/B2B in Table 4
• For 10 flats, Mr. B receives extra Rs. 5 lacs (above 10 lacs) – Rs. 50 lacs - To be shown in advances.

Disclosure in GSTR 9 and 9C

Opportunities for Chartered Accountants

• Anti profiteering
• GST litigation
• CA certification
• RERA consultancy
• Form filing and other compliances
• RERA litigation (from builder side as well as buyer side) (up to RERA authority)

CA. Mohit Gupta

Anivesh Legal Consultants

+91 9717587750

www.linkedin.com/in/mohitguptaca