Chapter 1 : Introduction

• Section 1: Understanding the Real Estate Sector 1
• What comprises real estate? 2
• Various arrangements under Real Estate 6
• Real Estate – A legal perspective 7
• Here are some key legal considerations in real estate 7
• The different Legislations governing Real Estate Transactions 9
• Section 2: Levy under the Constitution 11
• Section 3: History of levy of indirect taxes on immovable property 12
• Constitutional framework for indirect taxation 12
• Power of State Legislature to Levy Tax on Sale of Goods 13
• Initial interpretation of taxable goods 13
• The emergence of works contract taxation 14
• The Supreme Court verdict: Gannon Dunkerley case 14
• Another Judgement impacting Levy of Sales Tax on Works contract 16
• The 46th Constitutional Amendment and Its Impact 16
• Key judicial developments in works contract taxation 18
• Evolution of Indirect Taxation in the Real Estate Sector 22
• Section 4: Introduction of GST and Challenges to Its Constitutional Validity 23
• Addressing ambiguity and challenges 24
• July 2017 – March 2019: Introduction of GST 24
• April 2019 onwards: Major changes in GST for Real Estate 24
• Proposed Amendment to the Scheme for Real Estate 25

Chapter 2 : Basics of GST as relevant for the Real Estate Sector

• Section 1: Navigating complexity in the Goods and Services Tax era 26
• Section 2: Taxable Event 27
• Section 3: Understanding supply under GST 28
• Supply in GST 28
• Meaning of goods and services in GST 29
• Understanding works contract under GST 30
• Construction of apartments and its classification under GST 30
• Tax implications on sale of Residential/Commercial units 31
• Completion certificate and first occupation 31
• Understanding ‘first occupation’ 32
• Partial occupancy certificate (Part OC) and GST implications 32
• In the course and furtherance of business 33
• Definition of business under GST 33
• Meaning of “in the course or furtherance of business” 34
• Reverse charge mechanism (RCM) and business definition 35
• Section 4: Sale of land under GST 37
• Land component in a sale of under-construction unit 37
• Practical implications of land deduction 39
• Can Developers allocate a higher land value? 39
• Applicability of Rule 42 in Context of 1/3rd Land Deduction 40
• Section 5: Re-sale during Under-Construction stage 42
• Classification of the transaction under GST 42
• Concept of Novation agreement and international precedents 43
• GST treatment in India for resale of under-construction units 43
• Section 6: Input Tax Credit 46
• ITC: General Principles 46
• ITC restrictions for real estate projects under the 5 / 1% GST regime 47
• Reversal of ITC in case of unsold units at completion 47

Chapter 3 : Relevance of RERA in GST

• Section 1: Carpet Area 49
• Section 2: Project 51
• Section 3: Promoter 53
• Section 4: Apartment 55

Chapter 4 : Time of Supply

• Continuous supply of services 57
• Time of supply for continuous supply of services 57
• Practical application for Developers 58

Chapter 5 : Place of Supply

• Place of supply for immovable property 60
• Implications for construction services 60
• Importance of place of supply 61

Chapter 6 : Valuation of Supply

• Section 15 of the CGST Act, 2017 63
• Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 64
• Deemed value of land 64
• Valuation method 64
• Calculation 65
• Compliance and documentation 66

Chapter 7 : RCM for Real Estate Sector

• Specified services subject to RCM 67
• Relevant notifications and provisions 67
• Scenarios where RCM applies to Developers 67
• Procurements from unregistered persons 69

Chapter 8 : Taxation upto March 2019

• GST rates for real estate transactions 70
• Under-construction properties 70
• Completed properties 70
• Affordable housing projects 70
• ITC 70
• Eligibility 71
• Utilization of ITC 71
• Abatement for land value 71
• GST on services related to Real Estate 71
• Reverse charge mechanism (RCM) 71
• Amendments 72
• ITC reversal 72
• Section 17 72
• Rule 42 72
• Overview of ITC in Real Estate 73
• Purpose of Rule 42 73
• Method of ITC apportionment and reversal 73
• Calculation 74
• Step-by-Step calculation 74
• Annual reconciliation 74
• Issues faced in calculating the Rule 42 reversal for the period upto 31st March, 2019 74
• ITC for Reversal – ITC of full project or ITC of the financial year of completion 75
• Basis to calculate the reversal –value of sold/ unsold units 75
• Impact on cash flow and tax liability 75
• Conclusion 76
• Impact on Real Estate Sector 76

Chapter 9 : Taxation effective from 1st April, 2019

• Definitions under GST 77
• Residential real estate project (RREP) 77
• Real estate project (REP) 77
• Affordable Housing 78
• Non-affordable housing 78
• Conditions for new GST rates 79
• No ITC 79
• Transitional provisions 80
• Impact on the Real Estate Sector 81

Chapter 10 : Transitional Provisions effective from 1st April, 2019

• What qualified as ongoing projects 82
• Options for ongoing projects 83
• Credit reversal 83
• Detailed steps for transition 84
• Impact on the Real Estate Sector 84

Chapter 11 : Land Procurement Models

• Outright purchase 85
• Development Agreement (DA) 85
• Area Sharing Model 86
• Revenue Sharing Model: 86
• Land Leasing 87
• Government Land Allotment 88
• Society Re-development Model 88
• Slum Rehabilitation Model 89

Chapter 12 : Business Models and its GST Implications

• Section 1: GST on outright land purchase model 91
• Section 2: Transfer of development rights: A controversial taxation 93
• Understanding development rights 93
• Arguments for GST applicability on development rights 93
• Arguments against GST applicability on development rights 95
• Section 3: GST implications on land procured under Development Agreement (DA) Model 99
• GST implications in revenue sharing model 99
• GST implications in area sharing model 100
• Time of supply of transactions between developer and
landowner in a development agreement 101
• Implications of Section 148 102
• Exemption for supply of development rights: Notification
No. 4/2019-Central Tax (Rate) 105
• Reverse charge mechanism: Notification No. 5/2019-Central Tax (Rate) 106
• Valuation of development rights and construction services 108

Chapter 13 : Various Scenarios under the Development Model

• Section 1: Residential - Area 112
• Section 2: Residential - Revenue 117
• Section 3: Commercial – Area 121
• Section 4: Commercial – Revenue 127
• Section 5: Mix (RREP) - Area 132
• Section 6: Mix (REP) - Area 136
• Section 7: Landowner sales 140
• Section 8: TDR Certificates 142

Chapter 14 : Transfer of long-lease Rights and GST Implications

• Understanding long-lease rights in Real Estate 146
• GST on lease premium paid to Government authorities 146
• Exemption on lease component in sale of under-construction units 147
• Exemption on long-term lease of land for residential projects 147
• Reverse charge mechanism (RCM) on long-term lease transactions 148
• Judicial Interpretation: Gujarat High Court’s judgment 148
• Sale of units after completion 149

Chapter 15 — 80:20 Procurement Rule for Real Estate Projects

• Understanding the 80:20 procurement rule 151
• Key Issues in calculation 152
• Periodicity of calculation 153
• Consequences of not meeting the 80% criteria 153
• Reporting and compliance 154

Chapter 16 : Rule 42 Reversal

• Revised Rule 42 155
• Applicability to real estate projects 155
• Key provisions of the revised Rule 42 156
• New apportionment formula based on carpet area 156
• Compliance requirements 157
• Impact on real estate developers 157

Chapter 17 : Other Components in a Sale of Under-construction Unit

• Preferential location charges (PLC) 160
• Infrastructure and development charges 160
• Nature of charges 160
• Parking charges 161
• Water and electricity connection charges 161
• One-time maintenance deposit 161

Chapter 18 : Credit Notes and Refund under GST in case of Unit Cancellation

• Section 1: Credit Notes for Cancellations 164
• Section 2: Refunds for Cancellations 165

Chapter 19 : Closing Thoughts 168

Chapter 20 : Addendum 170

Relevant Notifications
• 4/2018 – Central Tax (Rate) dated 25th January 2018 170
• 3/2019 – Central Tax (Rate) dated 29th March 2019 171
• 4/2019 – Central Tax (Rate) dated 29th March 2019 206
• 5/2019 – Central Tax (Rate) dated 29th March 2019 212
• 6/2019 – Central Tax (Rate) dated 29th March 2019 214
• 7/2019 – Central Tax (Rate) dated 29th March 2019 216
• 8/2019 – Central Tax (Rate) dated 29th March 2019 218

GST Real Estate

Insights into The Real Estate (Regulation and Development) Act, 2016

Demystifying GST for the Real Estate Sector

GST on Real Estate & Works Contracts