GST on construction of buildings

[Sudhir Kumar]

I am the owner of a land given the land to the builder for construction of Apartment on the condition that after construction 50% of the constructed building/flat will be given to me. After construction the builder has given me the 50% of total constructed flat but charged GST on material and service used in constructing such building or flat.

Am I eligible to pay the GST amount charged by the builder, please elaborate

[Padmanathan KV]

Yes, you are liable to pay GST to the developer.

In case of the joint development agreement entered on or after 1st April 2019, you have to pay 7.5% or 1.5% (in case of affordable apartment) on the value of construction service in respect of constructed apartments received by you.

The value of construction service in respect of such units shall be deemed to be equal to the total amount charged for similar apartments in the project from the independent buyers nearest to the date of Joint Development.

You shall be eligible for 1/3rd deduction from the above value of construction towards the value of land.

[GUNASEKARAN K]

I agree with view of Mr.Padmanathan Kollengode.

[deepak gulati]

Padmanathan jee

In my opinion, the Builder is giving construction services to Landowner to the extent of 50% and hence the GST Rate should be 18% on such construction services.

[Shilpi Jain]

Pls have a look at the clauses in the agreement that you have entered with the builder. Does it state that you would be liable to bear the GST on the units handed over to you? Or does it put that liability on the builder?

GST law does not anywhere state that the recipient has to pay tax to the supplier, though GST being an indirect tax, this is assumed. However, if your agreement clauses state otherwise then you need not bear this tax.

Also if other details of period of contract, etc are available, certain other aspects of ITC can also be looked at in this transaction.

[Padmanathan KV]

Deepak ji,

As per the facts given, the land owner has given the entire land for development to the promotor. After development by promoter, 50% of the contracted area is given back to landowner. Hence, I have opined as above in Post 1.

It is not a case where there is a construction agreement for 50% of the land, and development right given for balance 50%. If it was this type of situation, then your views will be more apt in my opinion.

Real estate transactions can be structured in various ways and the tax treatment would ultimately depend on the nature of arrangement between the parties.

AI Summary

GST on construction services to landowners: liability may arise under joint development where developer supplies construction services to landowner. Liability to pay GST arises where a landowner receives constructed flats under a joint development arrangement; for agreements on or after 1 April 2019 the construction component received by the landowner is taxable and its value is determined by amounts charged for similar apartments to independent buyers near the joint development date, with a one third deduction allowed towards the value of land. Contractual allocation of GST liability and the precise transaction structure can, however, affect tax treatment and input tax credit consequences.