Status as on- 29/03/2022
In 2016, two very important reforms were introduced by the Central Government which was the RERA Act, 2016 and the GST. The RERA Act has been revolutionary for the real estate sector and GST has changed the tax regime.
Focusing on the applicability of GST from the lens of real estate sector, it brings to our attention that as per the Central GST Act there being no supply of goods within the meaning of the GST Act in a real estate transaction as ‘Goods’, as per Section 2 (52) include only movable properties. Immovable properties are, therefore, not goods and are outside the scope of GST and the land is also not covered under the definition ‘Services’.
For determining whether the supply of land and/or building fall within the meaning of goods or services, one may have to go to Schedule II of the CGST Act which lists out activities to be treated as supply of goods or services.
In relation to land and building, the activity of construction of complex etc. is listed as service at item 5 of the Schedule 11. Supply of land is not mentioned in this Schedule. Reference can also be made to Schedule III of the Act which is a negative list specifying activities or transactions which are to be treated neither as supply of goods nor as supply of services. “Sale of land” is mentioned in this list at item no. 5. Whether going by Schedule II or Schedule III, supply of land is not ‘service’ either and therefore, not subject to GST.
Coming to buildings there are two situations. Once, a building which is ready for moving being complete as evidenced by the issue of completion certificate and the other, which is incomplete being in the process of construction. Schedule II, in item 5, mentions “construction of complex, building, civil structure or part thereof, except where the entire consideration has been received after issuance of completion certificate, where required, after its first occupation, whichever is earlier”. The reading makes it clear that whereas the supply of completed building in respect of which the completion certificate has been issued is outside the net of GST, the supply of under-construction building amounts to supply of services subject to GST. The supply of completed building, where the entire consideration is received after the issuance of completion certificate or, after it is first occupation, shall be outside the scope of GST even if the agreement was entered into when the building was under construction. If any part of the consideration was received before the issue of completion certificate, the supply will be of building under construction attracting GST.
To sum up:
- Supply of land, being neither good nor services, is outside the tax net.
- Supply of completed, ready to move in building or unit of building in respect of which full consideration is received after issue of completion certificate or, after its first occupation, whichever is earlier, is also neither good nor service and hence outside the tax net.
- Supply of building any part of the payment in respect of which is made prior to the issue of completion certificate or its first use, amounts to supply of construction service which is liable to GST as such.
GST applicable from 01.04.2019 is 1% on Affordable Housing Projects and 5% on all other projects.
What if builder charges GST:
If the builder charges GST on ready-to-move-in units then the Home-buyer need to object to the demand notice and also needs to object before the payment of GST because if any installment is charged with GST then complete payments may be subjected to imposition of GST. Home buyers also need to take expert advice before making any decision as charging of GST may increase the cost of their dream home by 5 percent.
Disclaimer- The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinion before relying upon the article. For more information, please contact us at email@example.com