Construction and real estate contribute towards major portion of revenue to the government through taxes and other mode of revenue. Government is clear on the necessity of a basic house to everyone and therefore ensured that there should be affordable homes for every family through welfare schemes and subsidy.
With the increasing price of real estate, due to boom in economy from year 2000 still it had became nightmare for many of us for owning a home. Apart from direct govt schemes for below poverty group, it had provided schemes such as Pradhan Mantri Awas Yojana.
GST on certain construction services are also exempted with conditions regarding size of the unit and completion status of the unit. The act and rules are clear to provide benefit for small residential units with limitation on maximum area of residential unit etc.
In case the taxpayer is engaged in supply of construction services, it is advised to look in to every details regarding the exemption condition, valuation, rate determination carefully. Construction service is one of the critical service prone to mistakes under if there is lack of knowledge, it is always advised to take support of gst return filing consultant for construction business
Exemption on certain construction activities
Pure Labour contract
- Services provided by way of supplying pure labour contract by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, for alteration of civil structure or any other original work pertaining to beneficiary led individual house construction or enhancement under Housing for All Mission (urban)/ Pradhan Mantri Awas yojana are exempt from GST.
- Services by way of pure labour contract for individual residential unit is exempt from gst provided the residential unit is for use by one family. There is no restriction on size of the residential unit, exemption is available as long as the condition of “for the purpose of one family” is satisfied.
Example on pure labour contract
- Mr.Ravi carries on the business of construction services and he had been awarded the contract for supply of labour for construction of 150 units (under Pradhan Mantri Awas Yojana) in the capacity of sub contractor. Mr.Ravi provides construction services in nature of pure labour and does not provides raw material for construction along with it, therefore Mr.Ravi qualifies for exemption for value of service provided. The act is clear that the service should be provided in relation to PMAY and does not lays conditions that it should be directly provided by himself by inclusion of the word “Pertaining”
- Mr.Ravi provides labour contract services for construction of commercial complex, only pure labour contract for supply of labour is exempt for residential unit. In this case the supply of labour for construction of commercial complex is taxable under GST.
- Mr.Ravi engages in construction of house for individual with ground floor and 1 st floor with separate entrance and kitchen in terms of pure labour contract, even though the construction activity is of residential unit for individual the condition of for purpose of one family is not satisfied therefore it is not exempt.
GST on sale of apartment
- GST is applicable only for sale of residential unit which is under construction, sale of residential unit which is entirely completed is exempt from GST, it should have received certificate of completion from the prescribed authority as determined by state government.
- Sale of under construction apartment / residential unit is taxable.
- Where the under construction unit is sold and it is eligible to be classified as affordable housing scheme, concessional rates of gst is applicable.
Affordable housing scheme means residential unit up to carpet area of 645 sqft / 60 sq meters for metropolitan city and up to 695 sqft/ 90 sq meters for other than metro cities shall be satisfied and sale value of such property shall be up to Rs.45,00,000 Only.
For the purpose of calculation Rs.45,00,000 limit, stamp duty value payable to registration department and charges paid for use of common facilities is not included.
- The project should have commenced on or after 01 april 2019 or the taxpayer should have opted for new rates.
When it is considered as apartment is booked before date of issue of certificate of completion
The apartment is considered as booked prior to issue of certificate of completion, if all the following conditions are satisfied.
- Part of supply of construction of the apartment service has time of supply on or before the date of issue of certificate of completion
- Consideration equal to at least one installment has been credited to the bank account of the registered person on or before the said date
- An allotment letter or sale agreement or any other similar document evidencing booking of the apartment has been issued on or before the said date.
Even if one condition is not satisfied before date of issue of completion certificate the apartment shall not be considered booked prior to issue of certificate of completion.
Example on affordable housing project
- Casa grand launches its apartment project in Omr chennai and gives a special launch offer of Rs.6000 per sqft and project is yet to be started, in this case GST is chargeable at concessional rate if the carpet area of apartment does not crosses 645 sqft. GST chargeable at 1 % if all the above three conditions are satisfied.
- Casa grand launches luxury apartments with swimming pool, play area, community center etc with apartment size not more than 645 sqft, charges collected is Rs.40,00,000 for apartment and 10,00,000 for other facilities, in this case only charges for apartments should be considered the amount of Rs.10,00,000 shall not be included for purpose of calculation of Rs.45,00,000 limit.
Works contract for construction activity
- The concept of works contract is applicable only when composite supply of goods and services is provided by the supplier, in simple terms pure labour supply is not termed as works contract. There should be transfer in goods along with the service, as per gst act, works contract is termed as service provided on immovable property only.
- GST is charged at 18 % as there is no involvement of transfer of land, on the contrary if the builder builds and sells the residential unit along with the land abatement of 1/3 of total value of project is available so effective rate will be 12 %.
- Input tax credit is available for supplier of works contract service as said above.
- Incase of work contract is provided to Pradhan mantri awas yojana the rate of GST shall be 12%
Other important points
- RREP (residential real estate project) means a residential project in which carpet area of commercial area is not more than 15 % of total project carpet area
- REP (real estate project ) is residential project in which carpet area of total commercial units is more than 15 % of total area of the project
- Competed project is always exempt form GST
- RREP or REP does not have any relevance in GST rate determination of residential unit.
- As per recent judicial pronouncement where the value of land and value of construction services is specifically mentioned, it is not compulsory for the taxpayer to claim abatement on total value, and he can calculate gst on value of construction.
- GST is not applicable on resale of immovable property so subsequent sale is not taxable.
- Input credit is blocked for certain supplies under construction contract services.
- For claiming concessional rate of GST minimum of 80% of purchases should be done through registered supplier, where it is lower than 80%, dealer is required to pay tax on supplies from unregistered dealer on reverse charge basis, except for cement.
- Same logic of apartments are applicable for sale of individual residential units.
- Composition scheme is not applicable for construction business gst registration
GST rates applicable on construction sector
|Sl.No||Nature of Service||Rate before reducing value of land||Effective rate after giving abatement for value of land|
|1||Affordable residential apartment in a RREP (Commenced on or after 01.04.2019 or ongoing projects opted for new rates) intended for sale||1.5%||1%|
|2||Residential apartment (other affordable residential apartments) in a RREP (commenced on or after 01.04.2019) or ongoing projects opted for new rates), intended for sale||7.5%||5%|
|3||Commercial Apartments in REP other than in RREP||18%||12%|
|4||Affordable residential apartment in REP, other than in a RREP (commenced on or after 01.04.2019, or ongoing projects opted for new rates), intended for sale||1.5%||1%|
|5||Residential apartment (other than affordable residential apartments) in REP other than in a RREP (Commenced on or after 01.04.2019, or ongoing projects opted for new rates) intended for sale||7.5%||5%|
|6||Ongoing projects in specified schemes (of lower rate of tax) where the promoter has not opted for new rates||12%||8%|
|7||Commercial Apartments in a RREP (commenced on or after 01.04.2019 or ongoing projects opted for new rates) intended for sale||7.5%||5%|
|8||Ongoing Residential apartments as on 31.03.2019 , other than affordable residential apartments, where promoter has not opted for new rates.||18%||12%|