GST in case of Affordable Residential Apartments

[Varsha Chatterjee]

Hi, Experts. If a Builder entered into an Agreement with a Land Owner to Construct a Residential Apartment of 10 Flats (G+4). The Builder purchased Bonds to acquire permission for the Construction of the Top-Most Floor in the Apartment, which handed-over the Ownership of the 2 Flats on the Top-most Floor to the Builder. So, the Land Owner is entitled to 4 Flats in the Apartment and the Builder has ownership of 6 Flats according to the Agreement (Joint Development Project). The Land Owner and the Developer do not wish to retain any of the Flats for Personal Use after the Construction of the Apartment and want to sell all the 10 Flats according to their Ownership. The Construction of the Apartment is Finished and the Occupancy Certificate for the Apartment is issued (none of the 10 Flats were sold at the time of issuance of the Occupancy Certificate). (The Project is located in a Non-Metropolitan City in Andhra Pradesh and can be classified under "Affordable Housing" i.e., Carpet Area<90 Sq.Mts & Sale Price

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Since the flats are not sold before OC, GST is not payable by either the land owner or the Developer on their respective shares. Not eligible for input tax. Since the flats remained unsold at the time of receipt of OC, the Developer is required to pay tax on the TDR value under RCM, as per law.

[Sadanand Bulbule]

Under GST, an apartment forming part of a Real Estate Project (REP/RREP) is treated as a "residential apartment", since the expression "apartment" is adopted from Section 2(e) of the Real Estate (Regulation and Development) Act, 2016 (RERA), which includes an independent building or part thereof intended for separate ownership, including a villa, row house or bungalow.

Accordingly, Entry 3 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019, applies equally to villas also. Therefore, where the apartment/villa is sold before issuance of the Completion Certificate or First Ocupation and does not qualify as an affordable residential apartment, GST is leviable at 5% (without ITC).

Further, Paragraph 2 of Notification No. 11/2017-Central Tax (Rate) deems one-third of the total consideration as the value of land, and GST is payable only on the remaining two-thirds of the consideration. Thus, the effective GST incidence works out to 3.33% of the gross sale consideration.

Coming back to the query, since the developer is handing over four constructed apartments to the landowner in lieu of development rights, the developer is liable to pay GST at 5% without ITC on supply of construction services covered under SAC 9954 to the extent of value of construction of four apartments. This laibilty stands intact irrespective of OC/CC issued before or after the completion of construction.

[Shilpi Jain]

Your query is not forthcoming in the post.

GST @5% is required to be paid by the builder/developer for flats handed over to the landowner and also @5% on the flats retained by the builder and that remained unsold on completion certificate.

AI Summary

Joint development apartment taxation raises competing views on construction-service GST, unsold units, input tax credit, and development-rights reverse charge.
GST implications in a joint development residential project are discussed for apartments allocated to a landowner and developer but unsold when the occupancy certificate is issued. The views differ on whether the developer pays GST on construction services supplied through apartments transferred to the landowner and on unsold retained apartments. The discussion also addresses the absence of input tax credit and the developer's possible reverse-charge liability on the value of transfer of development rights.