Residential villa construction and sale by promoters attracts GST at 1.5% for affordable units, 7.5% for others under Notification 11/2017 /2017

AAR Kerala ruled that construction and sale of residential villas by a promoter attracts GST at 1.5% for affordable units and 7.5% for other residential units under Notification 11/2017 as amended. The taxable value is calculated on two-thirds of total consideration, with one-third deemed as land value being excluded. Additional charges for structural changes, extra area, or interior works completed before construction completion form part of the gross construction service consideration and are subject to GST at applicable rates.

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Issues Involved:
1. Applicable GST rate on construction and sale of villas.
2. Calculation of taxable value for construction of villas.
3. GST applicability on additional charges for structural changes, additional area, or interior works before completion of construction.

Detailed Analysis:

Issue 1: Applicable GST Rate on Construction and Sale of Villas
The applicant sought clarification on the GST rate applicable to the construction and sale of villas. The ruling confirmed that the GST rate is 1.5% for affordable residential apartments and 7.5% for other residential apartments, as per Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019. The effective tax rates, after excluding one-third of the total consideration towards land value, are 1% for affordable villas and 5% for other villas, subject to the conditions specified in the notification.

Issue 2: Calculation of Taxable Value for Construction of Villas
The applicant queried how to calculate the taxable value for construction services when the land is sold directly by the landlord to villa buyers identified by the applicant. The ruling stated that the taxable value should be determined as per Paragraph 2 of Notification No. 11/2017 Central Tax (Rate). This provision allows for the deduction of one-third of the total amount charged for the supply as the value of land or undivided share of land. Therefore, the taxable value is two-thirds of the total value of the villa, including land value.

Issue 3: GST Applicability on Additional Charges for Structural Changes, Additional Area, or Interior Works
The applicant also sought clarity on whether additional charges for structural changes, additional area, or interior works undertaken before the completion of construction should be included in the gross amount charged for construction and sale of the villa. The ruling confirmed that these additional charges form part of the total amount charged for the supply. Consequently, they are subject to GST at the same rate as the construction service, i.e., 1% for affordable villas and 5% for other villas, without input tax credit, as per the conditions in the notification.

Conclusion:
The ruling provided clear answers to the applicant's queries:

1. The applicable GST rate for construction and sale of villas is 1.5% for affordable residential apartments and 7.5% for other residential apartments, translating to effective rates of 1% and 5% respectively after excluding one-third value towards land.
2. The taxable value of construction services is calculated by deducting one-third of the total amount charged for the supply as the value of land, thus considering two-thirds of the total value of the villa for GST purposes.
3. Additional charges for structural changes, additional area, or interior works before completion of construction are included in the gross amount charged for construction and are subject to GST at the same rates as the principal construction service.

These rulings ensure that the applicant adheres to the specified GST rates and valuation methods, maintaining compliance with the relevant GST notifications and provisions.

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