The real estate sector is a vibrant economic sector. In the 47th meeting on June 28-29, 2022, the GST Council clarified many issues concerning tax slab rates and procedural changes. The following are changes that have an impact on the Real Estate sector:
RATE CHANGES RELATED TO CONSTRUCTION/WORK CONTRACT SERVICES AND GOODS:
| Description | From | To |
| Job work in relation to manufacture of clay bricks | 5% | 12% |
| Works contract for roads, bridges, railways, metro, effluent treatment plant, crematorium etc. | 12% | 18% |
| Works contract supplied to central and state governments, local authorities for historical monuments, canals, dams, pipelines, plants for water supply, educational institutions, hospitals etc. & sub- contractor thereof | 12% | 18% |
| Works contract supplied to central and state governments, union territories & local authorities involving predominantly earthwork and sub-contracts thereof | 5% | 12% |
| All fly ash bricks attract the same concessional rate irrespective of fly ash content | ||
| Condition of 90% fly ash content with respect to fly ash bricks applies only to fly ash aggregate, and not fly ash bricks. As a simplification measure, the condition of 90% content is being omitted |
The rate changes recommended by GST council meeting will be made effective from 18th July,2022.
Clarification in relation to GST rate on Certain Services
Preferential location charges (PLC)
Home buyers often do not mind paying a little extra, to enjoy certain amenities that other buyers may not have access to. This gave rise to the concept of preferential location charge (PLC), a charge that increases the overall cost for the buyer and a tool that helps the builder to tweak the rate of the property at his discretion.
For example, In Mumbai, the 12th floor, will attract two types of PLCs – one for the height and the other for the view. “While, in Mumbai, people pay higher PLCs to stay on the top floor, people in Delhi pay higher PLCs for apartments on the ground floor.
The issue was whether PLC would form part of the supply of long-term leases or would be considered as a separate supply hence liable to GST at the rate of 18%.
Allowing the choice of location of a plot is part of the supply of long-term lease of a plot of land. Therefore, location charges or preferential location charges (PLC) are part of the consideration charged for a long-term lease of land and shall get the same treatment under GST.
Clarification is a welcome move. It may also help cases for real estate developers charging PLC.
Sale of Land after levelling, laying down of drainage lines etc.
The sale of land after levelling, laying down of drainage lines etc. is the sale of land and does not attract GST.
Ambiguity was there regarding whether the sale of lands after levelling, drainage etc. will be chargeable to GST or not (i.e. developed plots etc.). Council has clarified that if a land developer undertakes the development of any plots with any basic amenities like drainage, road, etc. then sale of such developed plots won’t be taxable.
Clarification on the said issue was much required to avoid litigations.
The exemption is being withdrawn for Renting of a residential dwelling to business entities (Registered Persons):
Service is classifiable as rental or leasing service involving own/leased residential property (SAC 997211). Applicability of SI No. 12 of the Exemption Notification depends upon whether the dwelling unit is used as a residence.
Service by way of renting of residential dwelling for use as the residence was exempted irrespective of the status of the recipient. Now if renting of residential dwelling is given to a registered person same will be not covered in the exemption.
The change will also impact where Corporates are using renting residential dwelling services for their employees, etc. Landlords would not be required to take any registration if the threshold limit is not crossed.
Note: The recommendations of the GST Council have been presented in simple language for information of all stakeholders. The same would be given effect through relevant Circulars/ Notifications/ Law amendments which alone shall have the force of law.
Disclaimer: This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
