REAL ESTATE SECTOR & GST By CA. Jatin Harjai

CONTENTS Industry Introduction Current Tax Structure GST Structure and its effects Sector Specific Issues / Transitional Issues

Industry Introduction

INDUSTRY INTRODUCTION

INDUSTRY INTRODUCTION

Current tax structure Construction contractors are issued with Material and Labour. Service tax is charges under works contract service with following two option: Service tax on 30% value including value of material and land Service tax on 40% value including value of material VAT : VAT is charges as per state government rules in difference state. Rate of VAT on Works Contract in Rajasthan is 3% %.   Some important case : Larsen and Toubro – Apex Court: Works contract is Indivisible contract BSBK LTD, L&T judgement overruled and works contract can be divided between material and labour Kone Elevator Case: Supply and installation of elevator was supply contract initially but subsequently changed to

Textile Industry Value Chain

Textile Industry Value Chain

Textile Industry Value Chain

Textile Industry Value Chain

Sector Specific / Transitional issues Input Credit : Section 17(4)(c) & (d) : Credit eligibility in case of immovable property: a) Works Contract service to Works contract service – ALLOWED b) Works Contract service to Imm. Prop. being Plant & Machinery : ALLOWED c) Works Contract Service to any other Imm. Prop. : NOT ALLOWED d) Goods & Services for own Imm. Prop. Being P&M: ALLOWED e) Goods & Services for own Imm. Prop. (Not Being P&M) : NOT ALLOWED Hence input credit can not be availed by builders when he sell the flats which will be taxable under the category of construction service. Input credit will also not be available on construction of commercial complex by developer where income will be under the renting category.

Sector Specific / Transitional issues Intra State Contract V/s Inter State Contract : “ (47) fixed establishment” means a place, other than the place of business, which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs; Hence if contractor is from Haryana executing a contract in Jaipur, he need to take registration in Rajasthan. Will site office maintained be treated as place of business? ‘

Sector Specific / Transitional issues Free issue material: Free issue material will be added to the value of supply which may lead to double taxation of material. Land Cost : Land cost will be included in the value of supply. There is no abatement for the value of land.

Sector Specific / Transitional issues 3. Lease of Land / Commercial Complex will also be supply (1) Supply includes— (a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, CBEC Notification No. 41/2016-Service Tax dt. 22 Sept. 2016 [F. No. 354/51/2016 -TRU] There is exemption of service tax on lease of land for the period exceeding 30 years by Government undertaking and Corporation. There is no such exemption under GST. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier. In case building which has been constructed on lease land and transferred after obtaining the completion certificate, still GST can be applicable since it is transferred on lease.

Other Issue / Transitional issues “works contract” means a contract wherein transfer of property in goods is involved in the execution of such contract and includes contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property; If work contract has been carried out for movable property such as repair of car with spare parts : Composite supply