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GST Updates- 46th SNAPSHOT –Impact of GST on WORK CONTRACT & REAL ESTATE

For further information please contact : GST Ind Global Solutions LLP. Raipur

E: updates@gstindglobal.com , W: GSTIndglobal.com, T: +91-9827152729/7000045500

Let us understand the GST

GST Updates- 46th SNAPSHOT –Impact of GST on WORK CONTRACT & REAL ESTATE

For further information please contact : GST Ind Global Solutions LLP. Raipur

E: updates@gstindglobal.com , W: GSTIndglobal.com, T: +91-9827152729/7000045500

From 1st July, GST will be paid on EMIs for purchase of under-construction apartments and on additional costs collected by the developer (Like- Internal & External Development charges, Preferential location charges and Club membership fees)

GST will not be charged on Completed Apartments. Currently, EMIs for ready-to-move-in apartments do not attract indirect tax. But instalments paid to the builder for an under-construction property attracts a service tax of 15 percent on which abatement is provided.

Residential Property - GST will not be charged on Rental income of residential unit .

Commercial Properties - Service tax of 15% is currently levied on Commercial Properties on rent, This will be replaced by 18% GST.

BACKGROUND

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GST Updates- 46th SNAPSHOT –Impact of GST on Real Estate & Work Contract

What is Work Contract under GST Regime ?

(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

It is very clear from the definition of work contract that only work related to immovable property is included in the definition , it can be original work or renovation , repair or alteration as well.

Further any work related to electrical installation , fabrication , plumbing work or other similar work is performed wherein transfer of property in goods is involved for any immovable property is also a work contract.

*Work Contract will be treated as provision of service as per schedule –II of the CGST act.

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GST Updates- 46th SNAPSHOT –Impact of GST on Real Estate & Work Contract

Some illustration of Work Contract: 1) Selling of flat or residential duplex before its completion to buyer will attract GST

under work contract. Selling of flat or residential duplex after its completion to buyer will not attract GST.

2) Performing construction work for any business entity/ government department or company where land belongs to respective person only construction work is performed , will be covered in work contract.

Rate of GST on Work Contract:

1. Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly. [The value of land is included in the amount charged from the service recipient]

12% With Full ITC but no refund of

overflow of ITC

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SNAPSHOT –Impact of GST on Real Estate & Work Contract

Rate of GST on Work Contract:

2. Composite supply of Works contract as defined in clause 119 of section 2 of CGST Act

18% With Full ITC

Input Tax Credit (ITC):

-Every registered person be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

- Even credit of capital goods like plant and machinery is also allowed in the GST Regime, which was not allowed earlier in service tax.

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SNAPSHOT –Impact of GST on Real Estate & Work Contract

GST Rates on some Input used in Work Contract :

Items GST Rate Items GST Rate

Pipes 18% Paint & varnish 28%

Cement 28% Sand Limb brick/ Fly ash Brick , Block 12%

Putty & Plaster 28% Glass 18%-28%

Sand 5% TMT , Angles (Iron & Steel) 18%

- Apart from the various input goods , there are many services like engineering , architect , labor contract , Designing etc for which input credit will be allowed on GST charged which is 18% in almost all the cases.

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SNAPSHOT –Impact of GST on Real Estate & Work Contract

Input credit not allowed when ? :

1) Credit of Works contract services will not be allowed to the recipient when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

Work contractor , who is providing service to other (not on own behalf) is allowed to take credit of Input and input services.

2) Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Illustration : When a person is constructing office building for his own use , then the credit for the same will not be allowed to that person. But it should be noted that the work contractor performing services will be allowed to take credit of his input goods/service.

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SNAPSHOT –Impact of GST on Real Estate & Work Contract

Work contract Exempt from GST :

A) Services provided by way of pure labour contracts of construction, etc pertaining to the Beneficiary-led individual house construction / enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY);

B) Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex;

Important Note : Affordable housing scheme exemption and exemption of Services provided to the Government, a local authority or a governmental authority by way of work contract which was covered in exemption list in the service tax ,was not covered in the exemption list released in the GST regime.

Like road, bridge, tunnel, or terminal for road transportation for use by general public, canal, dam or other irrigation works; pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; etc

It is may be noted that this list may not be final , some exemption may be added latter.

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SNAPSHOT –Impact of GST on Real Estate & Work Contract

Transitional Provision (Credit of Input and Input contained in Semi finished ):

Work contractor were registered assessee for VAT and Service tax but were availing benefit of composition and abatement hence were not taking credit or full credit in the respective return . Further they are also not required to be required to be registered under excise. In the above background , work contractor will be eligible for availing credit of inputs lying in the stock or contained in semi finished goods apart from the credit carried forwarded in return.

-Credit will be given only if Invoice or other document should be within 12 months from the appointed day (1st July 2017). - Such person should be in possession of invoice or other prescribed document

Important Conditions for availing transitional credit are:

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SNAPSHOT –Impact of GST on Real Estate & Work Contract

Working of Input Contained in Work in Progress Projects (Transitional )

-It is clear that credit will be given only for inputs procured within 12 months from the appointed date and is in stock either in the form of input or input contained in WIP projects (which are unbilled / not levied tax under the current indirect tax regime) .

- This working may required work of expert engineers to estimate and prepare the working.

VAT Credit : Credit available to the work contractor , if he has not taken any credit in return, based on invoice /other document in possession. If he has taken in return , credit based on return will be available.

CST Credit : Not available , Entry Tax Credit : Not Available

Excise credit : Available .

Service Tax Credit : Available , as carried forward in the last return.

Availability of Credit for different taxes paid by the work contractor:

For further information please contact: GST Ind Global Solutions LLP. Raipur

E: updates@gstindglobal.com , W: GSTIndglobal.com, T: +91-98271-52729/70000-45500

GST Ind Global Solutions LLP is an independent accounting and consulting firm created by reputed professionals

to cater towards best in class services in indirect taxation and allied services. This publication is general in

nature. In this publication, we have endeavored to analyze briefly, certain significant aspects of the GST related

updates/amendments.

It may be noted that nothing contained in this publication should be regarded as our opinion and facts of each

case will need to be analysed to ascertain applicability or otherwise of the topics covered in this publication.

Appropriate professional advice should be sought for applicability of legal provisions based on specific facts. We

are not responsible for any liability arising from any statements or errors contained in this publication.