CA ABHISHEK AGARWAL B.COM (Honours), FCA, DISA (ICAI) ABHISHEK SHANKAR AGARWAL AND ASSOCIATES

CA ABHISHEK AGARWAL B.COM (Honours), FCA, DISA (ICAI) ABHISHEK SHANKAR AGARWAL AND ASSOCIATES CHARTERED ACCOUNTANTS E| abhishek@caasa.org M| +91 9831982004 W| www.caasa.org

Dictionary meaning- Real Estate : CA ABHISHEK AGARWAL , FCA , DISA

Transactions related to Real Estate Sector CA ABHISHEK AGARWAL , FCA , DISA

Important Definitions : As per Section 2(33) of CGST Act, "continuoussupply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify; CA ABHISHEK AGARWAL , FCA , DISA

Important Definitions : Section 2(119) of CGST Act: “Works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. CA ABHISHEK AGARWAL , FCA , DISA

Repairing of a Motor CAR Cleaning of Outdoor Glass of a building Painting of Wall

Schedule II- Clause 6 CA ABHISHEK AGARWAL , FCA , DISA

Important Definitions : Section 2(30) of CGST Act: “Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply CA ABHISHEK AGARWAL , FCA , DISA

But every composite supply is not a work contract”. CA ABHISHEK AGARWAL , FCA , DISA

Section 7 CGST Act : Supply 7. (1) For the purposes of this Act, the expression “supply” includes–– • (a) all forms of supply of goods or services or both such as sale, transfer, BARTER, EXCHANGE, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; • (b) import of services for a consideration whether or not in the course or furtherance of business; and • (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and CA ABHISHEK AGARWAL , FCA , DISA

Important Definitions : Section 2(31) of CGST Act: “consideration” in relation to the supply of goods or services or both includes– any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government. CA ABHISHEK AGARWAL , FCA , DISA

Important Definitions : Extract of Section 2(17) of CGST Act: “Business” includes: • (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; • (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); • (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;……. CA ABHISHEK AGARWAL , FCA , DISA

Section 7 (1)CGST Amendment Act : Supply • (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. “(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.” CA ABHISHEK AGARWAL , FCA , DISA

Schedule-II Clause-2 2. Land and Building : • (a) any lease, tenancy, easement, licence to occupy land is a supply of services; • (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. CA ABHISHEK AGARWAL , FCA , DISA

Schedule-II Clause-5 5. Supply of services : The following shall be treated as supply of services, namely:— (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. CA ABHISHEK AGARWAL , FCA , DISA

Schedule-II Clause-5 : Explanation: Explanation.—For the purposes of this clause— (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:— (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority; CA ABHISHEK AGARWAL , FCA , DISA

Schedule-III Clause-5 CA ABHISHEK AGARWAL , FCA , DISA

Extract of Notification 11/2017 In case of supply of service specified in column (3) of the entry at item (i) against serial no. 3 of the Table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. Explanation .– For the purposes of paragraph 2, “total amount” means the sum total of,- (a) consideration charged for aforesaid service; and (b) amount charged for transfer of land or undivided share of land, as the case may be. CA ABHISHEK AGARWAL , FCA , DISA

Input Tax credit • Input tax credit is available to builder on GST on all inward supply of goods or services or both if they are used for the furtherance of business. • In case if the flats are sold and consideration is received after receipt of occupancy certificate, then Input Tax credit availed has to be reversed on pro rata basis. • Is Interest/Penalty applicable on reversal of ITC ? CA ABHISHEK AGARWAL , FCA , DISA

ITC – Entitling conditions • The claimant is in possession of the tax paying document issued by registered dealer • The tax paying document should contain all the particulars prescribed under the Invoice Rules; • The claimant has received the goods/ services; • Where supplier delivers goods to a person on the direction of an another person, goods are deemed to be received by such other person • The tax on such supply has been paid to the Government ; • The claimant has declared the details in his GST Returns . • In case of goods received in lots/ instalments, ITC only on receipt of the last lot/ instalment CA ABHISHEK AGARWAL , FCA , DISA

Legal Aspects & Key concepts: CA ABHISHEK AGARWAL , FCA , DISA

Rule 42 Accordingly , as per the powers conferred by above sub-section, government has notified Rule 42 of Input Tax Credit Rules, according to this sub-section , from the total available credits, the following deduction are required to be made :- • Inputs intended to be used exclusively for the purposes other than business. • Inputs intended to be used exclusively for exempt supplies . • Inputs partly used for business and partly used for other purpose. • Inputs partly used for effecting taxable supplies including zero rated supply and partly used for effecting exempt supplies and partly used for effecting exempt supplies. • Input tax ineligible to claim as credit as per Section 17(5). • 5% of common credit shall be deemed to be attributed to non-business purpose , if common inputs are used for non-business purpose . CA ABHISHEK AGARWAL , FCA , DISA

Another school of thought This rule states : Manner of determination of input tax credit in respect of inputs or input services and reversal thereof. For ascertaining the amount of reversal, conceptually: Net ITC ×Exempt Supplies Total Turnover [FOR A TAX PERIOD] CA ABHISHEK AGARWAL , FCA , DISA

Section 17 (5) Clause (c) & (d) (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d)goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. CA ABHISHEK AGARWAL , FCA , DISA

Section 17 (5) Clause (c) & (d) Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; CA ABHISHEK AGARWAL , FCA , DISA

Rule 37. Reversal of input tax credit in the case of non-payment of consideration A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice: Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16 CA ABHISHEK AGARWAL , FCA , DISA

ITC on equipment CA ABHISHEK AGARWAL , FCA , DISA

Taxability on sale of residential houses / villas / flats after receipt of occupancy certificate Is GST Applicable ?????? NO Why? Schedule III of the CGST Act as it is neither a supply of goods or services. Will it have any implications ? Yes, as GST is not applicable, it means ITC might not be available. Commercial implications should be explored. CA ABHISHEK AGARWAL , FCA , DISA

Taxability on sale of land / plots On sale of land GST is not applicable as per Schedule III, Clause 5 of the CGST Act as it is neither a supply of goods or services. What will be tax impact on the development charges for the plot? Yes taxable under GST @ 18% CA ABHISHEK AGARWAL , FCA , DISA

Alterations or changes to flat over and above sale agreement GST is applicable on such alterations / changes as requested by the customers. It will be treated as works contract and applicable tax rate is 18% Valuation – the actual value / consideration paid by the buyer to the builder. CA ABHISHEK AGARWAL , FCA , DISA

GST on completed Flats/Property or Ready-To-Move-in property • Transfer of completed flats, property or ready-to-move-in property will not involve any service part to the buyer. Hence, GST will not be applicable in such transactions. Because it is neither supply of goods nor service. Hence, if you are buying a completed flats/property or ready-to-move-in property, then you may save the GST cost. CA ABHISHEK AGARWAL , FCA , DISA

Property for which Completion Certification issued • If the builder got the Completion Certificate Before you purchase it, then it is considered as ready-to-move-in property. Hence, in such cases, there is neither supply of goods nor service. Therefore, No GST on such properties. CA ABHISHEK AGARWAL , FCA , DISA

Paid the Full Sale amount to the builder before 1st July 2017 • If you paid the full sale consideration amount before the applicability of GST (i.e 1st July 2017), then GST will Not be applicable in such situation. • However, as the transaction was done before the implementation of GST, service tax @ 4.5% has to be payable by the buyer in this regard. CA ABHISHEK AGARWAL , FCA , DISA

Paid the Part of Sale Amt. to the builder before 1st July 2017 • If you paid the part of sale amount to the builder before 1st July 2017, then GST will not be applicable to such part payment. • Because as the transaction was done before the implementation of GST, service tax @ 4.5% has to be payable by the buyer in this regard on such part payment. CA ABHISHEK AGARWAL , FCA , DISA

Paid the Sale Amount to the builder after 1st July 2017 • As the transaction happened post-GST implementation date, in such transactions GST will have to be Payable by the buyer. CA ABHISHEK AGARWAL , FCA , DISA

RATE CHART

GST tax rate for under Construction Flats, Property or Commercial Property • The applicable GST rate for under construction flats, properties or commercial properties in land or undivided share of land is currently at 12% with full Input Tax Credit (ITC). • The actual GST rate for under construction flats, properties or commercial properties is 18%. However, 1/3 of 18% (i.e 6%) is deemed as the value of land or undivided share of land supplied to the buyer of the property.

GST rate on Resale Property or Resale Flats • As per above clarification, such resale property or resale flats are considered as ready-to-move-in properties, GST will not be applicable in such resale transactions.

GST rate for Homes Purchased under the Credit-Linked Subsidy Scheme (CLSS) • Effective from 25th January 2018, if you purchased the property under the Credit-Linked Subsidy Scheme (CLSS), then the applicable GST rate will be 12%. • The effective rate of 8% after deducting one-third of the amount charged for the house towards the cost of land. CA ABHISHEK AGARWAL , FCA , DISA

What is Credit-Linked Subsidy Scheme (CLSS)? If you purchased the property under the schemes like:- • Economically Weaker Sections (EWS) • Lower Income Group (LIG) • •Middle Income Group-1 (MlG-1) or Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY Urban). CA ABHISHEK AGARWAL , FCA , DISA

Stamp Duty Stamp duty is levied by the State Governments and outside the GST ambit. Is stamp duty collected by the builder is to be included in the transaction value? Yes & No Yes - If it is not shown on the tax invoice issued by the builder separately then it should be included in the transaction value. No – if it shown on the tax invoice separately, then it can treated as services by the builder as pure agent and need not be included in the transaction value. Refer to Rule No– 33. CA ABHISHEK AGARWAL , FCA , DISA

Implications of Notification No. 15/2017-Central Tax (Rate) Refund of unutilized Input Tax Credit is not available on account of inverted duty structure. Separate accounts to be maintained by the works contractor for each and every works contract. Refer to Rule 56, clause 14 of the CGST Rules. CA ABHISHEK AGARWAL , FCA , DISA

Development Agreement The agreement between the developer and land owner liable for GST? Yes, as per definition of Supply given in sub-section 1 of section 7 of the CGST Act. As it says Supply includes “(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”. The developer is receiving portion of land in lieu of the construction, it can be defined or treated as “barter” / “exchange” and both are covered under definition of supply. CA ABHISHEK AGARWAL , FCA , DISA

Books of Accounts Chart of Accounts / Ledgers have to be analyzed completely. Accounts have to be maintained separately project wise. New ledger accounts / additions to chart of accounts have to be done to accommodate the reporting requirements under GST. On receipt of advance from customers, Receipt voucher has to be issued. CA ABHISHEK AGARWAL , FCA , DISA

Vendor Management Most of the sub-contracts are from the un-organized sector. All major sub-contracts should be advised to take registration under GST as for many of them the contract values are more than Rs 20 Lacs per year. Sub-contractors have to be trained on GST if not the return filing and matching will be a time consuming process. If sub-contractors do not file returns on time, then matching will not happen and ITC availed has to reversed. This will have an impact on the working capital and lower profitability. CA ABHISHEK AGARWAL , FCA , DISA

Vendor Management Is GST Applicable on material issued to sub-contractor ? Is GST Applicable on the usage of equipment / machinery by the sub-contractor? Depends on the contract terms. If contract has a provision that material will be issued to sub-contractor then GST is applicable on that. Agreements have to be redrafted. CA ABHISHEK AGARWAL , FCA , DISA

Anti- Profiteering Section 171 of the CGST Act clearly states that the input tax credit benefit derived should be passed on to the consumer. The builders were not able to take input tax credit of Central Excise, as a result the tax burden is passed on to the consumer but now under GST the same is allowed, the price offered to the customers have to be reworked. In transitional provisions also the builders can taken input tax credit on the closing inventory or in semi finished status, this credit has to be passed on. In case of VAT, the treatment is different from state to state, for few states it is under composition / TOT scheme and they were not able to take ITC, now under GST and for transitional credit is also available. CA ABHISHEK AGARWAL , FCA , DISA

CA ABHISHEK AGARWAL B.COM (Honours), FCA, DISA (ICAI) ABHISHEK SHANKAR AGARWAL AND ASSOCIATES