Goods and Service Tax is a reality now. In this article, we have
tried to capture the implications for Real Estate Sector under
various transaction in a tabular for for easy understanding.
Life Cycle of Real Estate Development
Land
Owner--------A---------Developer----------B-------Buyer----------C---------Tenant
|
Transaction |
Description |
Current Regime |
GST
Regime |
|
VAT |
Service
tax |
| A.1 |
Developer develops the
land on behalf of the land owner. |
- The Activity carried out by the Developer for the land owner
would qualify as Works Contract on which VAT would be payable.
- Applicable tax rate is 12.5% on 75% of the total consideration
receivable from the land-owner.
- The Developer is eligible to claim input credit on the goods
used for execution of the same.
|
- The Activity carried out by the Developer for land owner would
qualify as Works Contract Service on which Service Tax would be
payable.
- Applicable tax rate is 15% on 40% of value of contract
including value of land.
- Input Credit of input goods not allowed to the developer.
|
- The Activity carried out by the Developer for the land owner
would be deemed as Supply of Service being a Works Contract
Service, which is taxable @ 18% with full tax credit.
|
| A.2 |
Land owner enters in to
agreement to sell the property to the Buyers. |
- The Activity carried out by the Developer for the land owner
would qualify as Works Contract on which VAT would be payable.
- Applicable tax rate is 12.5% on 75% of the total consideration
receivable from the land-owner.
- The Developer is eligible to claim input credit on the goods
used for execution of the same.
|
- The Agreement entered into by land owner with the buyers is
taxable as Construction Service.
- Applicable tax rate is 15% on 30% of the value of agreement
inclusive of the value of land.
- Input Credit of input goods not allowed to the land owner.
- The Input of Service Tax paid by the land owner to the
Developer shall be allowed to the land owner.
|
- The Agreement between land owner and buyer would be deemed as
Supply of Service being a Construction Service, which is taxable @
12% of the full value including with full tax credit including
value of land.
- The Input of GST paid by land owner to the Developer shall not
be allowed to the land owner.
|
| B |
Developer is authorized
by the land owner to enter in to agreement to sell the property
with the Buyers after developing the property on behalf of
buyers.
(Tripartite Agreement) |
- The Activity carried out by the Developer for the land owner
and buyer under tripartite agreement would qualify as Works
Contract on which VAT would be payable.
- Applicable tax rate is 12.5% on 75% of the total consideration
receivable from the land-owner(in the form of land) and the buyer
excluding the value of land
- The Developer is eligible to claim input credit on the goods
used for execution of the same.
|
- The Tripartite Agreement is taxable as Construction
Service.
- Applicable tax rate is 15% on 30% of the value of agreement
inclusive of the value of land.
- Input Credit of input goods not allowed to the land owner.
|
- The Tripartite Agreement between land owner, developer and
buyer would be deemed as Supply of Service being a Construction
Service, which is taxable @ 12% with full tax credit.
- Value of land is not to be included.
|
| C. |
Rental of Immoveable
Property |
Not applicable
|
- The Renting Activity is chargeable to service tax @ 15% on the
value of rent.
- The Buyer shall be eligible to claim input of the input
services used.
- No credit is available for the service tax paid to the
developer or land owner
|
- The lease Agreement between tenant and buyer would be treated
as Supply of Service being a Renting of immoveable service, which
is taxable @ 18% with full tax credit.
- Input of GST paid to developer or land owner shall not be
allowable.
|
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
