Impact of GST on real estate sector | ITC on construction services

Summary

This video provides a comprehensive guide on the applicability of GST in the real estate and construction sector. It addresses common confusions related to the sale of land and buildings, GST on affordable housing, and ITC claims for construction material purchases. The video explains how GST is applied differently to metro and non-metro areas, offers clarity on when GST is applicable, and highlights judicial opinions, including a significant case from Odisha High Court regarding ITC claims. This session is a must-watch for professionals in the real estate and construction industries seeking clarity on GST matters.

Takeaways

• 😀 GST does not apply to the sale of land as it is subject to stamp duty, not GST.
• 😀 No GST is applicable on the sale of ready-to-move-in property that has been issued a completion certificate or has undergone first occupancy.
• 😀 GST applies only to the building portion of a property sale after completion, with the value of land excluded from GST calculation (one-third value of the property is considered as land).
• 😀 For affordable residential properties in metro cities, GST at 1% applies if the registration value is up to ₹45 lakh, with no ITC available to builders.
• 😀 Non-metro affordable housing properties also attract 1% GST with similar conditions as metro properties.
• 😀 Builders constructing affordable properties must purchase at least 80% of materials through registered suppliers to maintain compliance for GST.
• 😀 Builders cannot claim Input Tax Credit (ITC) on construction materials like cement, steel, and iron, even if GST is paid by suppliers.
• 😀 If builders fail to meet the 80% purchase requirement from registered suppliers, GST at 28% on an RCM (Reverse Charge Mechanism) basis will apply.
• 😀 For affordable residential projects, no more than 15% of the construction area can be used for commercial purposes to remain eligible for reduced GST rates.
• 😀 Construction services are considered a composite supply under GST, combining material and labor, which means builders cannot claim ITC for GST paid on materials used in constructing immovable property.
• 😀 The Odisha High Court ruling supported the idea that contractors should be eligible for ITC on construction services, but the case is still under appeal in the Supreme Court.

Q & A

Is GST applicable on the sale of land?

No, GST is not applicable on the sale of land, as stamp duty is already paid on land transactions.

When is GST applicable on the sale of buildings?

GST is applicable on the sale of buildings under construction, but not on ready-to-move-in properties that have a completion certificate or first occupancy.

What happens if a unit in a building is sold before receiving the completion certificate?

Even if a unit in a building is sold before the completion certificate is issued, GST will not be applicable if the first occupancy has already occurred.

What GST rate applies to affordable residential properties in metro cities?

Affordable residential properties in metro cities, with a registry value of up to 45 lakh INR and a size of 60 sq. m., are subject to a reduced GST rate of 1%.

Are non-metro affordable housing projects subject to the same GST rate as metro cities?

Yes, non-metro affordable housing projects with a registry value of up to 45 lakh INR and a size of up to 90 sq. m. are also subject to a reduced GST rate of 1%.

Can builders claim Input Tax Credit (ITC) on materials purchased for affordable housing projects?

No, builders of affordable housing projects cannot claim ITC on materials purchased for construction, even if GST is paid on those materials.

What is the 80% rule for builders in affordable housing projects?

The 80% rule stipulates that builders must purchase at least 80% of the materials required for construction from registered suppliers to avoid additional GST liabilities.

What GST rate applies to residential affordable housing projects?

Residential affordable housing projects are subject to a GST rate of 5%, but builders cannot claim ITC on the materials used for construction.

Is there a limit to the commercial area in affordable housing projects?

Yes, affordable housing projects must have no more than 15% commercial construction. If the commercial area exceeds this limit, the reduced GST rate will not apply.

What is the significance of the Odisha High Court ruling on ITC for contractors?

The Odisha High Court ruled that contractors involved in construction should be eligible for ITC, as GST aims for seamless input tax credit flow. The ruling was later appealed by the department.