Notes on GST – Real Estate

August 23rd, 2017

GST is a destination based tax, meaning there is only one point of taxation (point of supply). It has a big impact on the real estate sector, namely on the buyer, seller, developer, intermediary, financier and investor. The main impact it has on the real estate sector is that it eliminates the conflicting and cascading taxation structures which was present before. Apart from that there is seamless flow of credit and statutory forms are eliminated. However the effect of GST will be seen only after 2-3 years of its implementation.

Initially, different aspects of one single activity was taxed by different laws. Hence there was lot of confusion regarding treatment and taxability. GST aims to put an end to the uncertainity for the legislature.
GST charges all under-construction properties by a pure developer at 12% of the property value. All works contract services are charged at 18%.

The building, construction, fabrication, erection, installation, etc., on immovable property only is called works contract. A supply comprising two or more goods or service, naturally bundled and supplied with each other in the ordinary course of the business is called composite supply. For example, a fitted a/c. A mixed supply means two or more individual supplies of goods or services or any combination made by a taxable person for a single price. For example, an assortment of dry fruits and chocolates.

The due date for paying taxes is date of due or date of actual payment whichever is earlier. If the payment has not been received for more than 3 months, It is understood that services are continuously being provided. Whether demand notes are raised or not, or the payment made or not, tax has to be paid.

It is important that the receipt should be linked with the invoice. Credit can be claimed only in an invoice. Credit is available based on whether payment is made or not. GST should also be paid on additional consideration (interest or penal charges) collected from the customer. Even the person who acquired services must pay GST.
Registration is the most important point to note here. Once registered, a person cannot surrender it before a year. After one year, it can be surrendered.

If Bangalore is the place of order for works contract and Chennai is the place of work, should a client register with the state of Tamilnadu is the question that crops up. In these kinds of cases, IGST registration should be taken and the client is charged with IGST. We should not get carried away by location of person and location of supply.

To identify where tax should be paid, go by the order:
If in another state If IGST is not applicable If CGST is not applicable

There is no GST chargeable in the case of sale of land, sale of commercial complex after first occupation, receipt of full consideration after occupation, sale of incomplete structures, movement of vehicles from one state to another and in the construction of independent house. In the case of plotted development, the sale of land is not liable to GST.

If there was an advance given on or before 30th June, 2017 and the tax has already been paid, the person will get credit and then afterwards he will have to pay GST.

There is no doubt that the implementation of GST has a positive effect on the real-estate buyer, not to mention the simplicity of the taxation procedures and the increased transparency required from the builder.

Centum Technologies