Private and Confidential.

Not for Circulation.

Impact of GST on Society Redevelopment

BRIHANMUMBAI DEVELOPERS ASSOCIATION

BDA
Date : 10th September 2019

Presenter: CA Jignesh Kansara

1
Disclaimer
• The information in this presentation was compiled from various sources believed
to be reliable and is for informational purpose only.
• While every efforts have been made to keep the information cited in this
presentation error free, we do not take the responsibility for any typographical or
clerical error which may have crept in while compiling the information provided
in this presentation. Further, the information provided in this presentation are
subject to the provisions contained under different acts and reader is are advised
to refer to those relevant act before relying on our presentation. This
presentation does not purport to identify and deal with all the issues and
provisions related to subject and therefore should not be regarded as
comprehensive / sufficient for the purpose of decision making. Author does not
undertake any legal liability for any of the contents of this presentation. The
information provided is not, nor is it intended to be an advice on any matter and
should not be relied on as such. Professional advise must be sought before taking
any action on any of the information contained in it.
• Only for Intended recipients, PPT prepared based on scope prescribed as per
terms of engagements, may not be suitable for others.

CA Jignesh Kansara
Case Study for Discussion
Facts:
• Borivali Star Housing Society Limited has entered into Re development agreement
with “The Best Builders” on 1st May 2019 for re development of society. Other
relevant details are as under:

• Area of Plot is 500 Sq Meters.

• Total Number of Existing Members is 12 (each flat size 400 Sq ft. Carpet Area)

• Present Area occupied by existing members of Society (Fully Residential) 4800 Sq Ft

Carpet Area

• Society members will get 25% additional area free of cost ie 6000 Sq Ft Carpet. Six
members have purchased additional area of 100 Sq Ft each at price of 22,000 carpet

• Rent Allowance of Rs. 20000 p.m. for first year, 25000 for second year, 30,000 for
third year.
CA Jignesh Kansara 3
Case Study for Discussion – Contd.
Facts:
• Hardship allowance of Rs. 3,00,000 per member will be given on handing over
of vacant possession

• Permanent Alternate Agreement (PAA) will be executed on 10th September 19.

• Total area to be constructed post redevelopment is 14,400 Sq Ft. Fully

residential

• Total Rehab Area to be allotted to members = 12 * 400 * 1.25 = 6,000 Sq

Ft(Carpet Area). In addition 600 Sq Ft area sold to members.

• Area Available for Builder for Sale is 7800 Sq Ft Appx. 13 new flats of 600 Sq ft
carpet area is available for sale to Developer.

CA Jignesh Kansara 4
Case Study for Discussion – Contd.
Projections
• First 2 new flats will be sold to Independent buyers at 22000/Sq Ft(Carpet Area)
and then rate will be increased gradually as per market condition. Such
Independent buyers are not related party.

• Project will be completed in 3 years.

• 7 new flats will be sold out by the time project gets OC & 6 flats will be unsold
on OC date.

• Construction cost is estimated at Rs 27500 per SQ. MTR.

• At the time of OC estimated sales price will be 30000/Sq Ft (Carpet area)

CA Jignesh Kansara 5
Case Study for Discussion – Contd.
Projections
• The best builder will be required to load TDR to complete project at say appx
cost Rs. 100,80,000 (INR One Crore Eighty Thousand only)

• Presume 80% of purchase of input and Input services (year wise) and 100% of
purchase of Capital Goods and Cement (Other than RMC) of the Best Builder
will be purchased from GST registered vendors.

CA Jignesh Kansara 6
Case Study for Discussion – Contd.
Relevant Questions
• Based on above details / hypothetical presumptions, kindly help Borivali Star Housing
Society Limited, its members and The Best Builders in working out their GST Liability, its
valuation, time when such GST is payable, applicable GST Rate etc.

• Whether the Best builder can charge GST on members in respect of rehab flats?

• Will there be any GST liability on TDR purchased and / or FSI premium paid, who will pay
and at what point in time?

CA Jignesh Kansara 7
Impact of GST on Society Redevelopment

Relevant Legal Positions

CA Jignesh Kansara Slide No. 8

Society Redevelopment – Basic
• 2 Transactions

• Transfer of Development Right from Society to Developer

• Transfer of Constructed Units from Developers to Members (Construction

Services)

• Barter + Monetary Consideration.

CA Jignesh Kansara 9
Construction Services
How to work out Value of Construction Services?
Notification 03/2019 CT(R)

Value of construction services shall be deemed to be equal to -

• The total amount charged for similar apartment in the project from the
independent buyers, nearest to the date on which such development
right is transferred to the developer. (First Sale Agreement)

What will be applicable GST Rate on Construction Services?

• 1% w.r.t. construction relating to affordable residential apartments,
• 5% w.r.t. construction relating to other residential apartments and
commercial apartments in an RREP

CA Jignesh Kansara 10
Construction Services
When to pay Tax on Construction Services?
• The point of payment of tax would arise as on the date of
obtaining the completion certificate or on the first occupation,
whichever is earlier

Who will pay GST on Construction Services?

• Builder

Whether Builder can Charge GST on Construction Services from

Members?
• No prohibition but practically not done

CA Jignesh Kansara 11
Construction Services
Possible Issues:
• Whether Builder can choose to pay GST @ 18% as a Works Contractor on
Construction Cost+10% instead of Valuation of Similar Flats sold to
independent buyer?

• If such option is used Whether builder is required to pay GST

immediately or on completion of Project?

CA Jignesh Kansara 12
Taxability of Development Rights
If Project is fully booked before OC
• Supply of Development Rights used for the construction of residential
apartments in a project that are booked before issue of completion
certificate or first occupation is exempt.

If Not Fully booked before OC

• Supply of Development Right on such value which is proportionate to
construction of residential apartments that remain un-booked on the
date of issue of completion certificate or first occupation, would attract
GST, but the amount of tax shall be limited to 1% or 5%of value of
apartment [as worked out as per last sale agreement] (affordable / non
affordable).

Rate of GST on Development Rights

• 18%
CA Jignesh Kansara 13
Taxability of Development Rights
Who is liable to pay GST on Development Rights?
• The Builder / Promoter is liable to pay GST on Development Rights on reverse
charge basis. (Notification no. 06/2019-CT(R))

At what Point in time GST Liability will arise?

• Promoter shall be liable to pay GST on reverse charge basis on the date of
issuance of completion certificate, or first occupation of the project, whichever
is earlier.

CA Jignesh Kansara 14
GST On Hardship, Rent & Compensation Allowance
2 Possible Views

• Tolerating an act or situation – deemed services (Maharashtra AAR on Zaver

Shankerlal bhanushali)

• Not in course of furtherance of business.

CA Jignesh Kansara 15
Impact of GST on Society Redevelopment

Actual Working

CA Jignesh Kansara Slide No. 16

Working of GST Liability – Society & Members

GST Liability of Society

• NIL

GST Liability of Members

• NIL
• Builder will charge and Collect GST on 600 Sq ft Additional Area
Purchased by members
• 600 * 22000*5% = Rs. 6,60,000

CA Jignesh Kansara 17
Working of GST Liability – Construction Services

A) Construction Services Provided to Existing Members

(Total Rehab Area to be allotted to members * The value of apartments sold
to independent buyers nearest to the date of DA * 5%)

• 6000* 22000 *5%

• 6600000 (66 Lakhs)

B) Additional Area provided to Existing Members

600 * 22000*5% = Rs. 6,60,000 (Not a cost for Builders)

CA Jignesh Kansara 18
Working of GST Liability – Development Rights
C) GST on Development Rights Transferred by Land owner to Developers
• GST Not applicable on 7 Flats sold before OC
• GST applicable only on 6 Unsold Flat
• The liability would be lower of the following:

a) (GST payable on development rights for all apartments)* Carpet area of

apartments which remain un-booked as on the cut off date /Total carpet area of
the apartments)
• (22000*14400*18%)*(600*6)/14400
• 14256000

b) Value of un-booked apartments as on OC date as per last agreement * 5%

• 30000*600*6 *5%
• 5400000
Liability on TDR will be Rs. 54,00,000

CA Jignesh Kansara 19
Working of GST Liability – TDR Cost
D) GST on TDR cost
Working will be same like Development Rights

Lower of
a) (10080000*18%)*(600*6)/14400
453600

b) 30000*600*6 *5%
5400000
Liability on TDR certificate = 453600

CA Jignesh Kansara 20
Working of ITC Forgone by Builder in the Project
E) Working of ITC foregone

• Estimated Construction cost per Sq mtr = Rs. 27500

• Estimated Construction Area =1930.50 Sq Mtr
• Avg GST Rate on input and Input Services = 18%

• Total ITC forgone = 27500*1930*18%

• Rs. 9555975

CA Jignesh Kansara 21
Total GST Hit on the Project
SN Description INR
1 Construction Services Provided to Existing Members 6600000
2 Development Rights Transferrerd by Land owner to 5400000
Developers
3 GST on TDR cost 453600
4 ITC foregone 9555975

5 Total ITC List 22009575

6 Sq Ft 7865

7 Cost Per Sq Ft. 2798.42

Excluding Income Tax,

Stamp Duty, Registration
++++

CA Jignesh Kansara 22
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CA Jignesh Kansara Slide No. 23