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Everything to Know about GST on Construction Service/Real Estate Sector :

We understand that GST on construction service/Real Estate is very complex. Therefore, in this article, we have tried to cover each and every aspect related to Construction Service from GST angle that is also in simplified manner.


We have already covered GST on Joint Development Agreements in details which can be read at : GST on Joint Development Agreements


Areas Covered in this Article


1. Scope of Taxability (Schedule-II & III)


Since in Construction of apartments or so, both goods and service are used. Therefore, it becomes necessary to determine whether construction will falls under Supply of Goods or Service.


In this regards, Schedule-II needs to be referred which has been assigned the Role of determinant of Supply of Goods and Service by Section 7(1A).


Accordingly, Clause 5(b) of the Schedule-II which is the mother of construction service as far as scope of taxability of construction service is concerned needs to be referred which prescribes that:


5. Supply of services

The following shall be treated as supply of services, namely:-

........

(b) construction of a complex, building, civil structure or a 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.


In the definition following are the Key Words:


1. Construction: includes additions, alterations, replacements or remodelling of any existing civil structure;


2. Entire Consideration: As per clause 5(b), even a singly penny against any apartment/building is received before issuance of Completion Certificate or occupation as the case may be, then complete consideration will be under GST even though some of it has been received after Completion Certificate.


For instance,

Booking Date: 01.10.2023

Booking Amount: Rs. 5 Lakhs

Date of Issuance of Completion Certificate: 30.11.2023

Value of Flat: One Crores

Payment Date for Balance Amount of 95 Lakhs: 15.12.2023 ( after issuance of Completion Certificate).

In this case, the Entire Consideration against the apartment will be subject to GST.


3. Issuance of Completion Certificate by Competent Authority


Expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-


(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;


4. First Occupation: From literal meaning, it appears that provision is talking about physical occupation. However, it can not be the intention of the law as in that case, it can easily be abused by the Builders like in Building of 300 Flats, they can first ready one flat and allows its occupation to save itself from GST.


Accordingly, it was clarified in the form of FAQ by Board vide F. No. 354/32/2019-TRU dated 7th May, 2019 that


First Occupation 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.


In this regard, Section 2(zf) of RERA, 2016 needs to be referred which defines Occupation Certificate as


means the occupancy certificate, or such other certificate, by whatever name called, issued by the competent authority permitting occupation of any building, as provided under local laws, which has provision for civic infrastructure such as water, sanitation and electricity;

​Interesting Note: If you see clause 5(b) of Schedule-II, it has exceeded its authority by limiting the taxability of transaction in which complete consideration is received after Completion Certificate as Role of Schedule-II was not to decide taxability of any transaction but to classify them... In this regard, this authority has been provided by clause-5 of Schedule-III which says Sale of land and, subject to clause (b) of paragraph 5 of Schedule II , sale of building will be outside the preview of GST.


2. Value of Supply


As per Notification 11/2017 as amended, supply of construction service involving transfer of property in land or undivided share of land, as the case may be,


the value of supply of service 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.


Explanation .– total amount means the sum total of,-

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share of land, as the case may be.


Value of Land is deducted because as per Schedule-III, there is no GST on Sale of Land.


Here One point is to be noted that even if in agreement Value of Land is separately prescribed which is more/less than 1/3rd of total value, it will be ignored and only 1/3rd will be considered as Value of Land.


For Example in Agreement to Sale Apartment:

Value of Land : 70 Lakhs

Construction Value: 30 Lakhs


In this case, Taxpayer may feel that he should be charged only against Rs. 30 Lakhs (service of construction).


However, as per above Rule, Taxable Value will be Rs. 66.67 Lakhs (i.e. 2/3rd of the Total Value).


3. Rate of GST and ITC Eligibility


Significant changes were made in taxability for Projects commencing after 01.04.2019 vide issuance of multiple notifications from 3/2019 to 8/2019 dated 29th March, 2019.


In the said Notifications, Rates of GST along with ITC Eligibility have been prescribed as follows

Type of Project

Type of Apartment

Rate of GST

ITC Eligibility

Residential Real Estate Project/Real Estate Project

Affordable Residential Apartment

1% of total value (1.5%- 1/3rd of Land)

No

Residential Real Estate Project/Real Estate Project

Residential Apartment

5%

No

Residential Real Estate Project

Commercial Apartment

5%

No

Real Estate Project

Commercial Apartment

12%

Yes

Definition of Difference Terms


1. Residential Apartment: shall mean an apartment intended for residential use as declared to the Real Estate Regulatory Authority or to competent authority.


2. Commercial Apartment: shall mean an apartment other than a residential apartment like shops, offices, godowns etc.


3. Affordable Residential Apartment:

a residential apartment in a project which commences on or after 1st April, 2019 having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than forty five lakhs rupees.


4. Real Estate Project (REP): shall have the same meaning as assigned to it in in clause (zn) of section 2 of the RERA Act.


Section 2(zn) of RERA: “real estate project” means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto;


5. Residential Real Estate Project: shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP.


Rate of GST, Exemption and ITC Eligibility related to Joint Development Agreements has been discussed meticulously in another article which can be read at GST on Joint Development Agreements


4. Time of Supply


Since, Construction service falls under Supply of Service, Time of Supply will be need to be determined as per Section 13 of CGST Act read with Section 31.


Section 13:

(2) The time of supply of services shall be the earliest of the following dates, namely:-


(a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or


(b) the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or


Further, since it is continuous supply of Service, Section-31(5) needs to be referred for invoicing rules:


...in case of continuous supply of services,-


(a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment;


(b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment;


(c) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event.


5. RCM Liability on Promoter for purchase from Un-Registered Dealers


As per N.No. 3/2019 read with N.No. 7/2019, Promoter has been made responsible for Payment of GST under RCM for purchase from Un-Registered Suppliers in following manner:

(applicable to construction of all types of apartments excluding Commercial apartments in REP which attracts 12% GST)

Particulars

RCM Computation Methodology

Rate of GST

Inputs & Inputs Service

Minimum 80% of Value of Purchase of Inputs & Inputs Service (excluding Value of Development Rights, Long Term Lease, FSI, Electricity, High Speed Diesel, Natural Gas, Motor Spirit) , from Registered Suppliers. In case of Shortfall, Tax on Shortfall needs to be paid by Promoter under RCM.

18%

Cement

100% from Registered Suppliers, In case of any shortfall, Tax needs to be paid under RCM

28%

Capital Goods

100% from Registered Suppliers, In case of any shortfall, Tax needs to be paid under RCM

Rate applicable to that Capital Good.

Would it cover Employee Salary also: Answer is No as Employee's Service is not covered in definition of Supply as per Schedule-III.


Illustrations-1




In above, illustration though Purchase from Registered Suppliers is more than 80%, but he has purchased Cement from Un-Registered Suppliers, he needs to pay RCM @ 28% on value of cement.


Illustration-2



In above illustration, he has purchased 80% of the total inputs & inputs service from Registered Suppliers, so he does not need to pay GST under RCM.


Illustration-3

In above case, he has purchased 50% supply from Un-Registered Suppliers including Cement.

In this case, he needs to pay GST under RCM equal to:

Cement- 15% Value @ 28% GST.

Rest-15% of value @ 18% GST



We hope we have justified your time in reading the article.


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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.














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