Issuing clarification in the form of FAQs on GST rate changes for real estate sector, the Central Board of Indirect Taxes and Customs (CBIC) said that builders will have to refund GST paid by homebuyers if he/she cancels the flat booked in the last fiscal and will be allowed to avail credit adjustment for such refunds. Also, builders, not buyers, will have the power to choose between the optional GST rates decided for the real estate sector by May 10.
The FAQs come after the GST Council reduced GST rate to 5 per cent for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) effective April 1, 2019 for projects which commence on or after April 1. For ongoing projects, the real estate promoters have the option to choose between a 12 per cent rate with the option of input tax credit (ITC) or 5 per cent without it, and in the case of affordable housing projects, an 8 per cent rate with tax credit or a 1 per cent rate.
If realtor opts for new rate, 80 per cent of inputs and input services have to be purchased from registered vendors and value of purchases less than 80 per cent will invite a reverse charge of 18 per cent, except in case of cement, where applicable rate is 28 per cent. A “Residential Real Estate Project” has been defined as the one where carpet area of the commercial apartments is not more than 15 per cent of total carpet area of all apartments in the project.
If a real estate developer has collected 12 per cent GST from homebuyers beginning April 1, 2019, but later opted for 5 per cent rate, the builder will have to refund the extra tax (7 per cent) collected to the buyer. The FAQs, however, did not clearly spell out whether 7 per cent tax refunded by the builder will be adjusted against his GST liability. The FAQs said developer will be able to issue a ‘Credit Note’ to the buyer as per provisions of Section 34 in case of change in price or cancellation of booking. “Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note,” the FAQ said.
Explaining through an example, it said a developer who paid GST of Rs 1.20 lakh at the rate of 12 per cent in respect of a gross amount of booking of Rs 10 lakh before April 1, 2019, shall be entitled to take adjustment of tax of Rs 1.20 lakh upon cancellation of said booking on or after April 1, 2019, against other liability of GST. The FAQs also said once a real estate developer opts for either old GST taxation regime or new one for ongoing projects manually with jurisdictional Commissioner, he will not be permitted to modify it.
With regard to purchase of land from owner by developer commonly termed as Transfer of Development Right (TDR), the FAQ said GST would not apply on agreements entered into on or after April 1, 2019. However, for TDR agreements entered into prior to April 1, 2019, the developer will not be able to claim credit for GST already paid. TDRs were taxed at 18 per cent in the GST regime. All towers registered as different projects under RERA will be treated as distinct projects, for which the builder will have to maintain separate books of accounts, it said. PwC India partner and leader (Indirect Tax) Pratik Jain said “developers need to carefully evaluate as to which scheme is more efficient and clearly communicate to the customers accordingly”.
Jain said there might be situations, where one project is registered under RERA but different part of project (e.g towers) are at different stages of completion (e.g completion certificate has been received for one of the towers and others are still under construction). “As per the FAQ, in such case, tax rate still needs to be determined for project as a whole. It still needs to be clarified whether GST would still be applicable on flats sold in first tower(as same is outside GST as per GST Act itself). Logically, there should not be any GST with respect to towers where flats are sold after completion,” he said.