GST on Construction services, flats or apartments

Investment in immovable property such as land, buildings, flats, or apartments is considered a high-value investment undertaken by most people.

Owning an apartment or residential house is considered a pride and social achievement in India, more over a place to live is a basic necessity for every individual next to food. Therefore, a transaction in immovable property is specifically exempted by excluding immovable property from the definition of goods.

Transfer of completed immovable property is always exempted from GST as it is outside the purview of goods.

Sale of incomplete apartments, flats or other Construction activity on immovable property is considered as the supply of services as per schedule II of the CGST Act, therefore GST is chargeable on the value of construction activity determined on the basis of applicable GST provisions.

GST on labour contract for construction

• GST is exempted on pure labour contract services provided to the single residential unit where the residential unit is meant for use by one family, there is no restriction on size of the residential unit. There should not be any transfer of goods along with it, a contract to supply materials along with labour contract is not pure labour contract, therefore GST will be applicable on such services by classifying it as works contract.
• GST is applicable for pure labour contract on construction of commercial property.
• Supply of pure labour contract in relation to PRADHAN MANTRI AWAS YOJANA is exempted from GST.

GST on transfer of development rights to the builder

• Transfer of development rights to the builder by the landowner under the joint venture agreement for construction of residential apartments are exempt if the builder sells the apartments as under construction units and charges GST accordingly.
• In case where some units are sold as completed units, exemption is withdrawn in respect of such units and GST is required to be paid at the applicable rates.
• GST is required to be paid on the value of development rights, in proportion to completed units out of total units. That is exemption is withdrawn only to the extent of completed units not sold.
• The builder is required to pay GST on reverse charges basis in case of completed units on the date of issuance of completion certificate or date of its first occupancy, which ever is earlier. The owner of the property is not required to apply for GST registration as the transaction is subjected to reverse-charge and tax will be paid by the builder.

GST on sale of apartments or flats

GST is applicable only on sale of under construction residential unit, when the completion certificate is issued by the competent authority, sale of completed apartments or flats are exempted.

For making purchase of apartments affordable, government had launched affordable housing scheme where the apartment will be classified under affordable housing scheme if the carpet area is up to 60 square meters for metropolitan cities and for other areas the carpet are can be up to 90 square meters.

In case of units of affordable housing scheme the GST rate is 1 % for under construction units, and for residential units other than affordable housing scheme the GST rate is 5 %, and the sale value should not exceed Rs.45,00,000 in both the cases.

For calculating the limit of Rs.45,00,000 the stamp duty value and charges collected for common facilities shall not be included, for example charges for use of lifts, parks, swimming pool shall not be added to compute the monetary limit of Rs.45,00,000.

The project should have commenced on or after 1st April 2019 or the builder should have opted for new GST rates.

Conditions for availing concessional rate of GST

1. Input tax credit will not be available.
2. Minimum 80 % of inputs and input services should be purchased from the registered dealer, where purchases from the registered dealer is less than 80 % then the shortfall in value of inputs can be covered by paying GST under reverse-charge basis at the rate of 18 % for inputs and input services, and for cement the rate is 28 %.
3. While the computing the value of input services, charges paid for development rights, electricity, high speed diesel, motor spirit, natural gases shall not be added.

When the flat or apartment is considered as booked as under construction property ?

The flat or apartment is considered as booked prior to issue of completion certificate if all the three conditions are satisfied

1.  Part of the supply of construction of the flat has the time of supply on or before the date of issue of completion certificate.
2. Minimum of one instalment has been credited to the bank account of the registered person on or before the said date, that is the builder should have received at least one instalment in the bank account.
3. The builder should have issued an allotment letter or sale agreement or any other similar document as a proof of booking of the flat or apartment, before the date of issue of completion certificate.

All the three conditions should be satisfied for charging GST on sale on flat before the date of issue of completion certificate.

GST of sale of commercial property

For determination of GST rates on sale of under construction commercial property, the project is first required to be classified as REP ( Real estate project )  or RREP (Residential real estate project).

RREP (residential real estate project) project means the project in which the carpet area of commercial unit is not more than 15 % of total carpet area of the project. The applicable GST rate is 5 %.

REP (real estate project ) means the total carpet area of commercial units is more than 15 %. The applicable GST rate is 12 %.

The classification of REP or RREP is relevant only for determination of GST rate for commercial units, it is not relevant for GST rates of residential units.

Other important points for GST on property.

• GST is exempted for transfer of land, or resale of apartments, flats, or residential house, commercial plot, commercial building etc.
• In case the building is sold by the marketing agent, then the charges collected by such agent is chargeable to GST as commission or brokerage at the rate of 18 %.
• Completion certificate should be issued by the competent authority of the state recognised by the law, in case where there is no such authority, the certificate should be obtained from the registered architect, or chartered engineer, or the licenced surveyor of the respective jurisdiction.
• Any pure labour contract services relating to maintenance or repair of residential or commercial unit is chargeable to GST, only pure labour contract for original works relating to single residential unit meant for single family is exempted. Where the services are provided for extension of an existing unit, the same shall be chargeable to GST as works contract service or labour contract service.