ITC reversal by a builder

[Rajesh Kumar]

Sir/ Madam

A builder develops two projects. One is about to complete and received completion certificate in February 2021. Second is 25% completed. In first project 25 flats out of 100 remained unsold. However, 15 flats out of 25 unsold flats were booked before CC but later on cancelled that's they are also unsold now. The builder is availing ITC from the stating of both projects. Now he has to reverse ITC against the sale of 25 flares which are to be sold after CC.

1. What will be the method/ mathematical calculation of ITC reversal against unsold flats ?

2. Was ITC to be reversed on monthly basis when builder was unknown about the number of unsold flats at the time of CC?

3. What was the right time of reversal to avoid interest there on ?

4. Is project wise inventory of raw material to be maintained?

5. Was the calculation of reversal to be made on project wise availed ITC ?

Please guide

thanks and regards

[Rajesh Kumar]

Sir/ madam

above query was for ongoing projects or completed projects as on 01.04.2019.

Further, in case affordable projects, what is the date of bookings, is it may be the date of draw ?
When a flat booked at the time of draw and some payment also made by the buyer but later he cancelled that flat and the said flat sold after CC. So that will be exempted supply or taxable supply ?

[Alkesh Jani]

Shri

For the 1st query dated 29.11.2021, for point No.1 to 3, please refer Rule, 43 of CGST Rules, 2017.

For point No. 4 Yes, Project wise stock is to be maintained.

For point No. 5 Yes, reversal of ITC is to be made project wise.

In respect of 2nd query dated 29.11.2021, the amount received by you can treat as ‘Advance amount’ and while refunding the amount refund voucher is to be issued.

Please also refer instruction No. 3 dated 20th June, 2020.

The reply give above is general in nature. Further, to arrive at any conclusion, relevant documents and facts are to be studied.

In view of above, it is advised that hire an expert near you and act according to guidance provided by him/her.

Thanks

[Rajesh Kumar]

Sir

Rule 43 pertains to reversal of ITC on capital goods.

1.Is it applicable for the calculation for reversal of ITC in case of builders ?

2. Sir, please reply for Point No. 1 to 3.

3. When a flat booked at the time of draw and some payment also made by the buyer but later he cancelled that flat and the said flat sold after CC. So that will be exempted supply or taxable supply ?

[Alkesh Jani]

Shri Rajeshji,

Please read Rule 42 and 43 (in case of capital goods). All the formulas are given and after sub rule wherever applicable 'in case of supply of services covered by clause (b) of paragraph 5 of Schedule II' is appended by way of Explanation.

The figures are to be calculated as per formula given in the rule and on the basis of books of account. Moreover, the rules and notifications were issued at different time, therefore, calculations are to be made as per tax period.

In case of any difficulties, again it is advised that hire an expert near you and act as per his guidance.

Thanks

[Alkesh Jani]

In continuation to my reply, the flats sold after completion certificate is exempted from GST.

For amount received at the time of draw, can be considered as "Advance" and when refunded, the tax paid can either be adjusted towards the liability and can filed for refund of excess tax paid.

Thanks

[Shilpi Jain]

1. What will be the method/ mathematical calculation of ITC reversal against unsold flats ?

For projects completed after 1.4.19, revrsal to be done on the basis of carpet area of unsold units on completion date.

2. Was ITC to be reversed on monthly basis when builder was unknown about the number of unsold flats at the time of CC?

It can also be done on completion of the project. I.e. on receipt of completion certificate or 1st occupation , whicher ealier (WIE)

3. What was the right time of reversal to avoid interest there on ?

By 31st march of the FY in which completion certificate received or first occupation happens, WIE

4. Is project wise inventory of raw material to be maintained?

if possible good. Else ascertain that on a reasonable basis. This is given in rules.

5. Was the calculation of reversal to be made on project wise availed ITC ?

Yes.

AI Summary

ITC reversal for builders: allocate and reverse input credit for unsold units on project completion to reflect exempt supplies. ITC reversal is required on completion or first occupation where flats become exempt; computation uses rule-prescribed formulas, with capital goods adjustments following a capital-asset formula and inputs allocated by project. For projects completed after the relevant date, reversal is calculated on the carpet area of unsold units; project-wise ITC records and stock maintenance are required. Reversal timing is on receipt of completion certificate or first occupation, with obligation to complete by the end of the financial year to limit interest. Advance receipts are treated as advances and refunded via voucher with tax adjustment or refund as applicable.