The real estate sector, or industry, is one of the industries most closely monitored by tax authorities and investors. This is because it holds a higher prospect of earning a high margin on supply. This is one of the major sectors that often comes under dispute, making it essential to understand the same. With the GST Act and its application to all major supplies in the Indian economy, including the real estate sector, both business owners and laymen need to understand it to mitigate confusion and deal with it with ease, and comply with all applicable laws that are in force.
Real Estate Investors or Entities are not required to pay GST on vacant land. However, they are liable to pay GST on the construction of flats, apartments, and villa projects, among others. At the same time, they are not liable to pay GST after getting a completion certificate from the authorities for the same.
Tax Liability on Sale of Land and available exemptions as per the Law
The land is considered immovable property, and, pursuant to the GST Act, the sale of land is not considered to be the sale of goods or services, and thus does not attract GST, and the seller or buyer is not required to pay GST on such supply. The sale of land is subject to a central stamp duty.
The Gujarat Advance Ruling Authority provided in one of its rulings that GST is not applicable to the sale of land transactions, only when it exclusively relates to the transfer of ownership of land. Suppose a builder builds a building on a plot without taking any advance against an agreement and sells such a building after receiving the completion certificate from the concerned authority. In that case, the builder shall not be held liable to pay GST. Such an assessee or builder would not be eligible to claim ITC on any inward supply of goods or services.
In case a builder sells plots after providing an electricity line, water line, drainage line, or land levelling, or such other acts, then the developer or builder shall be held liable to pay GST as the same falls under the definitions provided in Schedule II of the CGST Act.
Determining the Place of Supply of Land as per the GST Law
As per the GST Act, the place of supply is the recipient’s location, and in the case of services that are related to immovable property, the location is considered the place of supply.
These services shall include services provided by:
– Architects,
– Interior decorators, surveyors,
– Engineers,
– Other experts or state agents,
– Service of the grant of rights to use immovable property,
– Carrying out/co-ordination of construction work.
Determining the Time of Supply of Land as per GST Law
The time of supply of services provided shall be the earlier of the following:
(i) the date of issue of the invoice by the supplier, if the invoice is issued within the period which is prescribed under section 31(2) of the CGST Act,2017, or the date of receipt of payment, whichever is earlier,
(ii) the date of provision of service, if the invoice is not issued within the period prescribed under Section 31(2) of the CGST Act,2017, or the date of receipt of payment, whichever is earlier; or
(iii) the date on which the recipient is showing the receipt of services in his books of account in a case where the provisions of clause (a) or clause (b) are not applicable.
The Time limit for issuing tax invoices for services under Section 31(2) of the CGST Act is given below:
– The invoice for taxable supply of services shall be issued within a period that is prescribed to be thirty days from the date of the supply of services.
– A banking company or a financial institution, or NBFC, is permitted to issue an invoice within forty-five days from the date of supply of service.
– An insurer or banking company or financial institution, including a non-banking financial company or Telecom operator, or any other class of supplier of services as may be notified by the Government regarding the making of taxable supplies of services between distinct persons as specified in Section 25 of the GST Act, may issue the invoice before or at the time recording the same in books of account or prior to the expiry of the quarter during which the supply was made.
And in case of an excess amount which the supplier has received in excess of the invoice amount up to INR 1000, the time of supply shall, at the option of the supplier, be the date of issuing the invoice relating to such excess amount as per the invoice.
Determining the Value of Supply of Land as per the GST Law
The value of supply shall be the value of the transaction or the price that is to be paid actually or may be payable for such transaction. There are certain conditions for accepting the transaction value as the value of supply:
(i) Neither the supplier nor the recipient of the supply is related to the other in any manner,
(ii) Price is the sole or the only consideration that is involved in the supply.
So, we can say that the value of supply is the price that the seller is charging the buyer for the supply of the goods or services. The land here is an immovable property, and GST shall not be applicable. However, suppose the builder supplies this land along with specific amenities, such as electricity lines, water lines, drainage facilities, or roads, and other necessary facilities. In that case, there shall arise a liability for GST for which the cost of land and the cost of amenities should be shown separately in the invoice.
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