Real estate sector is one of the major economic sectors for any country, especially India where this sector is getting the attention in the recent years. In this article we are going to discuss about GST updates in Real estate sector. Following are some of the key updates for the F.Y 2022-23 before announcement of Budget 2023.
GST CHANGES IN REAL ESTATE SECTOR
GST MANNER OF FILING REFUND CLAIM BY THE UNREGISTERED PERSON
In the cases of premature cancellation of long-term service contract where the supplier is not in a position to issue credit note in terms of the provisions of Section 34(2) of the CGST Act, the recipient (i.e., unregistered person refund) shall be entitled to claim refund in FORM GST RFD-01 under the category ‘Refund for unregistered person’.
Before filing the above refund application, the unregistered person would be required to obtain temporary registration through the GSTN portal. The refund amount claimed should not exceed the total amount of tax declared by the supplier on the invoices (against which refund is being claimed) issued by him.
Separate refund applications will be filed in respect of invoices issued by different suppliers. No refund shall be claimed by unregistered person if the amount is less than one thousand rupees.
RENTING OF A RESIDENTIAL DWELLING TO BUSINESS ENTITIES (REGISTERED PERSONS):
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.
Added a new entry as 5A in the notification which states that, Service by way of renting of residential dwelling to a registered person will cover into the RCM.
SAC for renting residential dwelling would be 997211 i.e., “Rental or leasing services involving own or leased residential property”. The applicable rate of tax would be 18%, either for payment of tax under forward charge or reverse charge.
NO GST ON RENTING OF RESIDENTIAL ACCOMMODATION FOR PERSONAL USE: Hon’ble Delhi High Court
1/3rd deduction for land value under GST is optional – MUNJAAL MANISHBHAI BHATT Versus UNION OF INDIA (Gujarat High Court)
CLARIFICATION IN RELATION TO 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.
GST RELATED CHANGES IN BRICKS AND EARTHEN AND ROOFING TILES – ATTRACT 6% GST WITHOUT ITC; 12% WITH CREDIT
The government on March 31 notified the GST rates that would be applicable from April 1. Those businesses who do not wish to opt for the composition scheme would be subject to 12 per cent Goods and Services Tax (GST) with ITC.
So far, manufacturing and trading of bricks were chargeable at 5 % GST, and businesses were allowed to claim credit on inputs. Now will attract 6% GST Without claiming input tax credit and 12% if wants to claim input tax credit. Developers of residential housing are not permitted to avail any ITC. Thereby such sharp increase in the tax rate for bricks would also lead to cascading effect in the entire residential housing sector.
RATE CHANGES RELATED TO CONSTRUCTION/WORK CONTRACT SERVICES AND GOODS:
The following are changes that have an impact on the real estate sector:
| S. No. | Description | From | To |
| RATE CHANGES RELATED TO CONSTRUCTION/WORK CONTRACT SERIVECES | |||
| 1. | Job work in relation to manufacture of clay bricks | 5% | 12% |
| 2. | Works contract for roads, bridges, railways, metro, effluent treatment plant, crematorium etc. | 12% | 18% |
| 3. | 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% |
| 4. | Works contract supplied to central and state governments, union territories & local authorities involving predominantly earthwork and sub-contracts thereof | 5% | 12% |
| RATES CHANGES RELATED TO GOODS | |||
| 5. | All fly ash bricks attract same concessional rate irrespective of fly ash content | ||
| 6. | 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 |
Impact on Real Estate sector from 47th GST Council meeting’s recommendations:
CLARIFICATION IN RELATION TO 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.
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.
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.
Published on: February 1, 2023