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New Tax Regime on Real Estate Sectors – A Tax Planning Tool


Extremely Innovative Scheme of Taxation of Real Estate Sector under GST is out and personalities behind deserve Presidential Award for extreme innovations. After 5 times reading the relevant provisions, I am trying to find out who is going to benefit from this new scheme Customer, Promoter, Government or a consultant like us? Let me summarize some of the important features of the scheme:

1.            New Rate of 1% for Affordable residential and 5% for other than affordable residential Sector on all new projects. and on ongoing projects if the promoter does not opt for old scheme by 10th May.

Mandatory Conditions:

  1. Tax Should be paid in Cash.
  2. No ITC – To be reported in GSTR-3B.
  3. Reverse the credit availed, relevant for future Income.
  4. 1/3rd deduction for land value.
  5. Promoter includes Developer & Land owner.
  6. 80% regd. Procurements.
  7. Short fall – 18% RCM Payment on Financial year basis – Return by 30th Jun.
  8. Cement URD – 28% RCM – Monthly basis>Capital goods URD – applicable rate, compulsory

2.            For Ongoing Projects, one-time option given to promoter to opt for old scheme by 10th May or else will migrate to new scheme.

3.            Calculations of Transitional input tax reversal in case he opts for new scheme for his ongoing projects.

4.            If the promoter decides to go for old scheme for all ongoing projects & not willing to take up any new project, the procedure shall remain as it is.

5.            Till now there is no mechanism for reversal of Input tax for the unsold inventory  at the time of completion or first occupation or on inventory not intended to be sold, a retrospective amendment in Rule 42 & 43 is being made thereby formula has been prescribed to reverse ITC on unsold inventory based on the area rather than value within six month from the end of the FY in which completion or occupation which ever earlier happens and interest is also payable from  1st April till the date of payment for the entire period from commence of project or 1st July, 2017 whichever is later.

6.            The tax treatment of Transfer of Development Rights (TDRs) for the new transactions related to the land owner in Joint Development Agreement (JDA) shall be Exempted for residential developments if all the flats sold till OC or else taxable under RCM while taxable under RCM for commercial development.

7.            Construction services by Builder to Land lord is taxable under forward charge while services by Land owner to ultimate customer taxable only if sold before OC.

Important job in hand for builder/promoter is to decide which way they must go based on the multiple considerations for that there is enormous tax planning scope, some important considerations may be:

A)           Stage of Completion of Project.

B)            Nature of Project i.e. REP or RREP.

C)            Stage of Booking and realization.

D)           Component of Land cast and construction cost in total project cost.

E)            Value of unutilized Input tax credit from 1st of July, 2017 till 31st March, 2019

Authored by CA Sanjay Kumar Agrawal and can be reached

E: sanjay@dsrvindia.com
M: 9810116321

Dated 04.04.2019

Disclaimer:

Anything written in this document is the personal understanding of the author. The author shall not be responsible for any of the decision made based on the contents of this document.

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