GST on Real Estate Sector – Key Highlights of the New Scheme (Effective from 1st April 2019)

The real estate sector has undergone significant changes with the implementation of the revised GST scheme from 1st April 2019. Below is a comprehensive overview of the key provisions and their implications for contractors, sub-contractors, and promoters.

1. GST Liability for Contractors / Sub-Contractors

General Rate: For both commercial and residential apartments, the GST rate applicable is 18%
Affordable Housing Concession: If at least 50% of the total carpet area in a project consists of affordable residential apartments, the GST rate is reduced to 12%.
Contractors/sub-contractors can rely on the promoter’s declaration to determine the applicable tax rate.
If, at project completion, the affordable housing proportion falls below 50%, the promoter must pay the difference between the concessional and standard tax rates.

2. Exemption on GST for TDR (Transferable Development Rights) / FSI (Floor Space Index)

Residential Apartments: No GST is payable on TDR/FSI issued after 1st April 2019 if the residential apartment is sold “before” obtaining the completion certificate.
If some residential apartments remain unsold at the time of completion, the promoter must pay proportionate GST under the reverse charge mechanism.
Commercial Apartments: GST is payable on TDR/FSI even if the commercial unit is sold before obtaining the completion certificate.

3. Time of Supply for TDR/FSI

Residential Projects: GST liability on TDR arises on the date of completion or first occupation, whichever is earlier.
Commercial Projects: GST liability arises when the promoter makes payment for TDR/FSI or within 60 days of contract execution, whichever is earlier.
The GST exemption is calculated as the difference between:

  (A) GST payable on TDR/FSI
  (B) GST payable on un-booked residential apartments.

4. Reverse Charge Mechanism for Purchases

Promoters must procure at least 80% of inputs and input services** from registered dealers.
If the 80% threshold is not met, GST @ 18% is payable on the shortfall under the reverse charge mechanism.
For capital goods purchased from unregistered dealers, GST is payable on a reverse charge basis.
Promoters must maintain “project-wise records” of inward supplies from both registered and unregistered suppliers.

Conclusion :
The revised GST provisions aim to bring greater transparency and compliance to the real estate sector. Promoters and contractors must pay special attention to procurement sourcing, affordable housing ratios, and timelines for TDR/FSI transactions to avoid penalties and ensure compliance.