New GST Tax Structure for Real Estate Industry on 1st April, 2019

GST Council the discussion was taken of GST new tax structure for real estate industry of 33rd GST Council meeting dated 24.02.2019

GST on affordable housing shall be @ 1% and on other than affordable housing @ 5%.

The ongoing projects will have an one-time option to continue under old scheme with ITC or switch over to new one without ITC. The time limit for transition will be discussed with states. However, reversal of ITC will have to be done in proportion to area or space.

In the new scheme, 80% of the materials shall be procured from registered dealers except for capital goods, development rights, leases premium etc.

This is a stringent condition as on shortfall of purchases from 80%, builders shall be liable to pay GST @ 18% under reverse charge mechanism.

In case of cement purchased from unregistered supplier, GST shall be levied @ 28% under reverse charge method.

What would be the GST rate on commercial apartments in case they are constructed in a residential real estate project?

5% without ITC if carpet area of commercial apartments is not more than 15% of total carpet area of the residential project. In all other cases GST rate on commercial apartments shall be 18% (effective rate 12%)

Example : The residential project total square feet 1000 so the builder develop the commercial apartments not more than 15% of carper area (i.e. 150 Square feet is constructed commercial apartment GST tax levied on 5% without ITC.

Relief has also been granted to commercial apartments (shops, offices etc) in any residential project for lower GST rate of 5% where carpet area of such commercial space is not more than 15% of the total carpet area of all apartments.

In case of Transfer of development rights, FSI and long term lease premium, burden of GST has been shifted to builder under reverse charge with time of supply to be determined on the basis of date of issue of completion certificate. 

The same time of supply would apply to JDA’s. In case of input tax credit, ITC rules shall be amended to have clarity and provide procedure for monthly and final determination of ITC and its reversal for real estate projects.

Salient features of decisions taken by the GST Council in the 34th meeting held on 19th March, 2019

Option for under construction projects

• Under Construction projects as on 31st March, 2019 shall have an option to choose old rates (effective rate of 8% or 12% with ITC) with input tax credit or new rates without input tax credit.

• If the option is not exercised within the prescribed time limit then new rates shall apply.

Conditions for the new tax rates:

• Atleast 80% of the material to be procured from registered dealers. Further, on shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis.

• However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.

• Input tax credit shall not be available.

Applicability of new tax rates:

The new tax rates which shall be applicable as follows:

1% without input tax credit (ITC) on construction of affordable houses shall be available for:

• Houses having area of 60 sqm in non- metros / 90 sqm in metros and value upto RS. 45 lakh

• Under construction affordable houses presently eligible for concessional rate of 8% GST (after 1/3rdland abatement)

5% without input tax credit shall be applicable on construction of:

• Under construction houses other than affordable houses presently booked prior to or after 01.04.2019. 

• For houses booked prior to 01.04.2019, new rate shall be available on instalments payable on or after 01.04.2019.

• Commercial apartments having carpet area of not more than 15% of total carpet area of all apartments.

Transition for ongoing projects opting for the new tax rate:

• Ongoing projects not been completed by 31.03.2019 shall transition the ITC in proportion to booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.

• For mixed project transition of ITC shall be allowed on pro-rata basis in proportion to carpet area of the commercial portion

• Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019

• Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted with the condition constructed flats are sold before issuance of completion certificate and tax is paid on them.

• Exemption can be withdrawn (limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses) if flats sold after issue of completion certificate.

• Builder shall be liable to pay tax on TDR, FSI, long term lease (premium) on the date of date of issue of completion certificate.

MSME Registration and its benefits

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy.

MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.

What are Micro, Small & Medium Enterprises?

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

i.Manufacturing Enterprises-The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

ii.Service Enterprises: -The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

2. Eligibilty Criteria for registration under MSME Act vide S.O. 1642(E) dtd.29-09-2006
For manufacturing Business

S.No.	Enterprises	Investment in Plant and Machinery
1.	Micro Enterprises	Upto 25 lakhs
2.	Small Enterprises	More than 25 Lakhs upto 5 crores
3.	Medium Enterprises	More than 5 crores upto 10 crores

For service providers

S.No.	Enterprises	Investment in Equipments
1.	Micro Enterprises	Upto 10 lakhs
2.	Small Enterprises	More than 10 Lakhs upto 2 crores
3.	Medium Enterprises	More than 2 crores upto 5 crores

3. Documents required for registration as MSME:-

1.Adhar card of the applicant (Proprietor/partner/director)

2.Name of applicant

3.Caste

4.Business name

5.Type of business entity

6.Address where plant is located

7.Office address

8.Date of commencement of business

9.Bank details (Bank Account and IFSC Code)

10.Business activity

11.Number of employees

12.Investment in Plant and Machinery or equipment

13.Photo Id proof of Applicant

14.Mobile number (linked with adhar card)

15.Email Id for OTP Verification

4. Benefits of Udyog Aadhar/MSME Registration: –

1.Benefits of all the government schemes such as an easy loan, loan without guarantee, loans with subsidized rates of interest etc.

2.Financial support for participating in foreign expos to showcase their products.

3.Eligible for government subsidies.

4.Registration would facilitate hassle-free opening of current bank accounts in the name of the business.

5.Allow businesses to apply for government micro business loans and other such related beneficial schemes.

6.Collateral free loan from banks

7.A hefty 50% subsidy on Patent/trademark registration

8.1% exemption on interest rate on overdraft

9.Eligible for Industrial Promotion subsidy

10.Protection against delayed payment (maximum credit period 45 days)

11.Concession in electricity bills

12.Reimbursement of ISO certification charges

13.Tax Benefits

14.Government tenders only for MSME

5.Some points to be noted for MSME Registration: –

1.MSME registration is also known as Udyog Adhar Registration and it is voluntary registration, not mandatory.

2.If someone wishes to register for more than one industry then they should opt for individual registration

3.In this form, the MSME has to self-certify its existence, details of the business activity, bank account, ownership and employment details and other information

4.No registration fees are required to be paid for this process.

5.After filling the details and uploading the same, the registration number would be generated and the same would be mailed to the email address given in the UAM which should contain unique UAN (Udyog Aadhaar Number)

6.Some of the MSME schemes launched government are Udyog adhar memorandum, zero effect, zero defect

6. Government of India launches support and outreach initiative for greater synergy to MSME Sector:

1.Loan upto 1 crore within 59 minutes through online portal

2.Interest Subvention of 2% for all GST registered MSMEs on fresh incremental loans

3.All companies with a turnover of more than 500 crores to be mandatorily on TReDS platforms to enable entrepreneurs to access credit form Banks, based on their upcoming receivables, thus, solving the problems of cash cycle

4.All PSUs to compulsorily procure 25 % from MSMEs instead of 20% of their total purchases

5.Out of 25% procurement mandated from MSME, 3% reserved for women entrepreneurs

6.All CPUs to compulsorily procure through GeM portal.

7.100 Technology centres to be established to the cost of Rs. 6000 crore

8.Govt. of India to bear 70 percent of the cost for establishing Pharma dusters

9.Returns under 8 Labour laws and 10 Union regulations to be filed once in a year

10.Establishment to be visited by an Inspector will be decided through computerised random allotment

GST new amedments effective from 1st April 2019

The 32nd GST meeting held on 10th Jan 2019 and the following new amedments are effective from 1st April, 2019.

1) Higher Exemption Threshold Limit for Supplier of Goods:

Notification No. 10/2019 – Central Tax dated 07.03.2019 exempts person from obtaining registration and payment of tax who is engaged in exclusive supply of goods and whose aggregate turnover in the financial year does not exceed Forty lakhs rupees. 

This benefit will not be applicable to a persons following category of business and required to take compulsory registration.

i)  A persons engaged in making supplies of goods such as ice cream and other edible ice, pan masala, tobacco and manufactured tobacco substitutes 

ii) A persons engaged in making intra state supplies in the State of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand. d) persons obtaining voluntary registration under Section 25(3).

2) GSTR 3B Return System further extended till June 2019:
Notification No. 13/2019 Central Tax dated 07.03.2019 specifies that the return in FORM GSTR-3B of for each of the months from April, 2019 to June, 2019, shall be furnished electronically through the common portal, on or before the twentieth day of the month succeeding such month.

3) GSTR 1 Return System further extended till June 2019 :

Notification No. 12/2019 Central Tax dated 07.03.2019 extends the time limit for furnishing the details of outward supplies in FORM GSTR-1 under the Central Goods and Services Tax Rules, 2017, by such class of registered persons having aggregate turnover of more than 1.5 crore rupees in the preceding financial year or the current financial year, for each of the months from April, 2019 to June, 2019 till the eleventh day of the month succeeding such month.

Further, notification No. 11/2019 Central Tax dated 07.03.2019 hereby notifies the registered persons having aggregate turnover of up to 1.5 crore rupees in the preceding financial year or the current financial year shall furnish the details of outward supply of goods or services or both in FORM GSTR-1 effected during quarter April-June 2019 till 31st July, 2019

4) Increase in Turnover Limit for Existing Composition Scheme:

As per notification no. 14/2019 Central Tax 07.03.2019 an eligible registered person whose aggregate turnover in the preceding financial year did not exceed Rs. 1.50 crore may opt to pay tax under composition levy. 

In case of states that is Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand the turnvoer limit is 75 lakhs for opting composition levy for eligible registered person. 

Further, the registered person shall not be eligible to opt for composition levy under sub-section (1) of section 10 of the said Act if such person is a manufacturer of the goods that is ice cream and other edible ice, pan masala, tobacco and manufactured tobacco substitutes.

5) Composition Scheme for Services and Mix Supplies :

Notification no. 2/2019 Central Tax (Rate) dated 07.03.2019 has made available composition scheme for suppliers of services (or Mix suppliers) with a rate of 6% (3% CGST and 3% SGST) having first supplies of goods or services or both upto an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person. This befit shall not be available to a persons engaged in making interstate outward supply.

For the purposes of this notification, the expression “first supplies of goods or services or both” shall, for the purposes of determining eligibility of a person to pay tax under this notification, include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act but for the purpose of determination of tax payable under this notification shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.