Implications of Rera and GST On Builders and Developers

IMPLICATIONS OF RERA AND GST ON
BUILDERS AND DEVELOPERS
Presented by Under the guidance of

Pranoti Deepak Dare Dr. M.S.Ranadive
121620003 Construction Management
S.Y.Mtech
(Construction Management)
College of Engineering Pune (COEP)

Forerunners in Technical Education 1
Contents
1. Aim
2. Objectives
3. Highlights of RERA
4. Prior practice(MOFA) vs proposed
new practice (RERA)
5. Outcomes of RERA
6. Methodology
7. Importance of RERA and GST for a construction manager

AIM
• To investigate the effects of the RERA bill

on the builders and promoters
• To study the effects of GST on the
construction industry focussing mainly on
Real State

OBJECTIVES
• To study the MOFA (Maharashtra Ownership of Flats Act) which was
enforced before RERA.
• To analyse the RERA act at the centralised level.
• To explore the MahaRERA broadly.
• To compare the MOFA with MahaRERA on various aspects.
• To study the taxation system based on GST for the construction
industry.
• Case studies for investigating the effects of RERA and GST on
builders and developers.
• Analysis of implications of RERA and GST on Real Estate sector
using questionnaire survey.

Highlights of RERA
• Government of India enacted the Real Estate

(Regulation and Development) Act 2016 on 26th March
2016 and all provisions shall come into effect from 1st
May 2017
• Maharashtra Real Estate Regulatory Authority
(MahaRERA) established vide Notification No.23 dated
8th March 2017

REAL ESTATE
ACT
IMPROVE THE PERCEPTION OF THE SECTOR AMONG VARIOUS STAKEHOLDERS
UNIFORM REGULATORY ENVIRONMENT
COMMERCIAL AND RESIDENTIAL LAND UNDER PROJECTS WHICH DO NOT HAVE

PROJECTS INCLUDING PLOTTED DEVELOPMENT MORE THAN COMPLETION CERTIFICATE
DEVELOPMENT(LEASE 500SQ. MT./ NO. OF UNITS BEFORE THE COMMENCEMENT
ARRANGEMENTS NOT COVERED) EXCEEDS 8 OF ACT
RENOVATION OR REPAIR OR REDEVELOPMENT PROJECTS NOT INVOLVING

MARKETING, ADVERTISING, SELLING AND NEW ALLOTMENT NEED NOT BE
REGISTERED

Government of Maharashtra has further
promulgated the following rules:
• Maharashtra Real Estate (Registration of Real Estate Projects,
Registration of Real Estate Agents, Rates of Interest and
Disclosures on Website) Rules, 2017
• Maharashtra Real Estate Regulatory Authority, Officers and
Employees (Appointment and Service Conditions) Rules, 2017
• Maharashtra Real Estate (Recovery of Interest, Penalty,
Compensation, Fine payable, Forms of Complaints and Appeal,
etc.) Rules, 2017
• Maharashtra Real Estate Appellate Tribunal, Officers and
Employees (Appointment and Service Conditions) Rules, 2017
• Maharashtra Real Estate Regulatory Authority (Form of Annual
Statement of Accounts and Annual Report ) Rules, 2017

Prior Practice(MOFA) Vs Proposed
New Practice (RERA)
SN Salient Issues Provision in MOFA, 1963 Provision in RERA, 2016

1 Sale of parking Not permissible Only covered car parking
space / Garages including
mechanical car parks
2 Carpet area Balcony included and net Includes:- Area covered by
usable area was the internal walls of the
permissible apartment
Excludes:- Area covered by
the external walls, exclusive
balconies, verandah areas,
service shafts and terraces
not included. 3% tolerance
allowed. Compulsory re-measurement
of flat at the
time of possession

3 Before execution of Not to exceed 20% Not to exceed 10%
agreement
4 Proportionate Chargeable Chargeable
charging of common
areas
5 Deemed Applicable within Six Applicable within three
conveyance months of notice. months of completion
certificate of real estate
project if date has not been
specified in the agreement to
sale
6 Defects period 3 years 5 years

7 Refund of money Simple interest @ 9% p.a. Simple interest @ 2% +
only from the date Sums are prevailing MCLR rate of the
if delay for received. State Bank of India from the
possession date sums are received.
then refund of
money
with interest to the
buyer
8 Formation of As soon as minimum Within 3 months of date of
society number of persons (60%) 51% of allotees that have
require to take flats. booked their apartments
Within 4 months of 60%
occupation.

SN Salient Issues Provision in MOFA, Provision in RERA,
1963 2016
9 Conveyance If no period mention If no period mentioned
within then for
4 months of formation single building within 3
of months
society. of issue of occupation
certificate or 51% of
total
number of allotees in
the
building / wing having
paid full
consideration
whichever is
earlier. In case an
apex body
has to be formed if no
date is
agreed upon the 3
months from
the completion of the
last Bldg.

1963 2016
10 Extension of i. Non availability of i. War, civil commotion
time for delivery steel, cement, other or
of flat building, water or act of God.
electric supply. ii. Any notice, order,
ii. War, civil commotion rule,
or act of God. notification, of the
iii. Any notice, order, government and/or
rule, notification, of other public or
the government competent authority.
and/or other public iii. Excludes period of
or competent registration where
authority. actual
construction not
carried
by promoter due to
specific stay, injunction
order to the project by

1963 2016
Note-the provisions of any court of law,
this proviso are not tribunal,
mandatory but competent authority,
negotiable. statutory authority,
high power committee
etc. or due to other
mitigating
circumstances as
decided by the RERA
authority.
iv. If authority is
convinced that due to
no fault of the
promoter there has
been a
delay he can get
extension for the
registration of the
project

1963 2016
11 Escalation Increase in local taxes, Escalation free except
water charges, duty increase in
insurance account of
and such other levies, development charges/
if charges to authority.
any, imposed local
authority/govt.
12 Share of outgoings In proportion to floor Proportion to carpet
area area.
of flat

1963 2016
13 All receipts Mentions maintain a 70% to be maintained
separate account. with
designated account
and to be
withdrawn as per
progress of
construction.
14 Project potential Till conveyance/ Disclosure to be made
society about
formation any FSI expectation of FSI
increase proposed to
would belong to be utilized including
developer expectation of future
FSI or
else consent of 2/3 rd
allottees
required
15 Interest Developer’s discretion M.C.L.R. plus 2% of
SBI Bank
Rate.

1963 2016
16 Termination Developer was entitled Promoter entitled to
to terminate
terminate after notice after 3 installments not
on paid
default of payment and notices given.
Refund must
be made within 30
days.
17 Specification of Generic declaration To mention brand, or
materials would price of
suffice product (if unbranded).
18 Registration of Not required Compulsory before
project any
advertisement or
receipt of payment

19 Insurance Of building Of building and title
20 Disclosure To be available on site On the site and website
21 Offences & Imprisonment and nominal Heavy fine linked with up to
Penalties files were prescribed 10% of estimated project cost
and imprisonment only if
directions of authority not
followed for both developers
as
well as allottees.

22 Consent to Consent not required Consent of 2/3 allotees
change unless individual unit is required for making any major
sanctioned plans affected. modification in sanctioned
plans or revised plans.
23 Development of Phase wise development Detailed phase wise
project and not mentioned development permitted along
amenities with different date of
possessions for apartment and
amenities

24 Unfinished project No provision of take over Authority with approval of
state government may allow
development of project by any
other person including first
right to take over and complete
the project will rest with
allottees who has purchased
apartment in the said project.
25 Marketing Agents Not required to be Registration is mandatory with
registered RERA authority.

• Under all the rules mentioned above, the Maharashtra Real Estate
(Recovery of Interest, Penalty, Compensation, Fine payable, Forms
of Complaints and Appeal, etc.) Rules, 2017 can be categorised
based on forms of complaints:
-Delays in delivery of project
-Violation of stated provisions (carpet area, height, balconies etc.)
• RERA does not cover rental arrangements or agreements in any

form.
• The rules are similar for residential and commercial projects.

Cases and their hearing held in court:
• Pravin Hiwale vs Darode Jog Homes Pvt.

Ltd.
• Mr. Ravi Nair vs M/s. Nirmal
Lifestyle(Kalyan) Pvt. Ltd.

Penalties for a promoter
OFFENCE PENALTY
Contravention of the provisions Penalty up to 10% of estimated

of Section 3 i.e.., making any cost of the project.
invitation for sale without getting For the continued default
the project registered with RERA imprisonment up to three years
(Section 59) or with further fine up to 10% of
the cost , or with both
Contravention of Section 4 i.e.., Penalty up to 5% of the

failure to make application for estimated project cost
registration, submitting false
information, failure to keep 70%
in separate bank account etc.
(Section 60)

OFFENCE PENALTY
Contravention of any other Penalty up to 5% of the estimated
provision of the project cost
Act/Rules/Regulations
(Section 61)
Failure to comply with the Penalty for every day of the
directions/orders of the default which can cumulatively
Regulatory Authority go up to 5% of the estimated
(Section 63) project cost
Failure to comply with the orders, Imprisonment up to three years
decisions of the Appellate or with fine for every day of
Tribunal(Section 64) default which can cumulatively
go up to 10% of the estimated
cost of the project, or with both.

Penalties for an agent
OFFENCE PENALTY
Failure to comply with order or Penalty for every day of default
direction of the Authority which can cumulatively go up to
(Section 65) 5% of the estimated cost of the
building/ apartment or plot
Failure to comply with order or Punishment with imprisonment up
direction of the Tribunal to one year or with fine for each
(Section 66) day of default which can
cumulatively go up to 10% of the
cost of the building/ apartment or
plot, or with both

Penalties for allottees
OFFENCE PENALTY
Failure to comply with orders of Penalty per day of the default
the Authority which can cumulatively go up to
(Section 67) 5% of the cost of building/plot or
apartment
Failure to comply with decision or Punishment of imprisonment up to
orders of the Tribunal one year or with fine for each day
(Section 68) of default cumulatively going up
to 10% of the cost of building/
apartment or plot, or with both.

Goods and Service Tax
• Proposes a unified nation-wide value added tax

to be implemented in India
• Introduced by the 101th amendment of Indian
constitution
• The chairperson of GST council is the present
Finance Minister Mr. Arun Jeitly

Prior
GST System
Taxation System
GOODS SERVICES GOODS/
SERVICES
MANUFACTURE SALE SERVICE

SUPPLY
TAX
EXCISE DUTY VAT/SALES
TAX
GST
CGST SGST
IGST

SN CONDITIONS PRIOR TAXATION GST SYSTEM
SYSTEM
1 Structure • Under separate laws, • There is no separate tax
tax is levied by Central levied for goods and
Govt. and State Govt. services. GST is a
on goods and services. common tax applicable
• In the Current taxation to both of these.
system import of goods • In the GST System till
into India is subject to a the goods or services
levy of customs duty reaches the consumer
and the person this GST tax would allow
importing the goods is smooth and continuous
liable to pay customs tax credit at all levels.
duty at the applicable
rates.
2 Place of Origin based taxation Destination based taxation

Taxation

SYSTEM
3 Excise duty A percentage levied on Excise Duty will be
manufacture, sale, or use subsumed in GST and
of locally produced goods. levied as CGST and SGST .
4 Service Tax Tax levied by the Tax will be subsumed in

government on service GST and levied as CGST,
providers on certain IGST, SGST
service transactions, but
its actually borne by the
customers.
5 State VAT VAT (Value Added Tax) is Here in GST, it is subjected
a form of indirect tax to CGST And SGST if the
imposed only on goods supply of goods is within the
sold within a particular state.
state.

SYSTEM
6 Broad Separate laws for charging
scheme separate taxes One law for various taxes
7 Tax rates Different tax rates for

different taxes. There will be
one CGST rate and a
uniform SGST Rate
across all states.

SYSTEM
8 Tax burden Tax burden is high for Tax burden is low because
the individual to pay so of single tax so the work
many taxes. splits between the
manufacturing and service
sector.
9 Transparent tax Under this the tax is
administration levied on two stages:
It is levied only at the final
When the product
destination of
moves out of the
consumption
factory
At retail outlet
10 Compliance Complex due to
multiplicity of tax Easier because of one
law

TAX
STRUCTURE
DIRECT TAX INDIRECT TAX= GST

(EXCEPT CUSTOMS)
INCOME INTRA- INTER-

TAX STATE STATE
CGST IGST
(CENTRAL) (CENTRAL)
SGST
(STATE)

Real Estate Sector
• One of the most complex areas of the indirect tax levied
by the Centre and the States is Works contract and sale
of property.
• Construction and Real Estate sector constitutes
approximately 5% of the country total GDP.
• Growth of this sector has a direct nexus with the nations
growth.

Players in Real Estate
• Builders. (Own Land)
• Developers.( Others Land).
• Works Contractors.
• Labour Contractors.
• Manufactures of Goods. (Cement Co, Tiles, etc.)
• Suppliers of Goods.( Traders)
• Suppliers of Goods from Outside Maharashtra.
• Service Providers like Engineers, Architect,
• Brokers, Advts, etc.
• Financers and Bankers.
• Leasing of Property.

Earlier taxation system
• Construction contractors are issued with Material and Labour.
• Service tax was charged 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 was charges as per state government rules in difference
state. In Maharashtra, it varied as 5% and 12.5%.
Rate of VAT on Works Contract in Rajasthan was 3%.

• The States apply VAT to the goods portion.
• And the Centre taxes the services portion.
• With no explicit tax on the transaction value of land.
• The State also collects stamp duty and registration charges for the registration of
property.
• Each authority taxes on aspects and valuation independent of the others.
• Real estate transactions unfortunately are subject to manipulation and
undervaluation in most parts of India.
• On resale no tax is payable in current as well as proposed scenario also.
• Buyer generally buys under construction property for cheaper rate and funds it
through bank loan for interest benefit.

GST and Real Estate
• The sale of land and buildings have been kept out of the
ambit of GST(currently)
• Real estate sector will be affected from the rates
declared for cement, bricks, iron etc. under GST.
• Currently as per GST law, on sale of immovable property
after completion certificate is issued is exempted from
GST.
• Current GST draft is silent about treatment of land.

Impact on Real Estate Buyers and
Investors
• All properties under construction will be
charged at 12 percent of the property
value.
• For completed properties, no indirect tax
on sale

Impact on developers
• Previously, developers were liable to pay customs duty, central

excise duty, VAT, entry taxes, etc.
• 15 percent tax on services like labour, architect fees, approval
charges, legal charges, etc.
• Eventually, this tax burden was transferred to the buyer.
• Prior to GST, a huge percentage of each real estate project
expenditure went unrecorded in the books.
• Now uniform charges will be there and no malpractices can be
followed.

GST On Rent
• Rent on residential property for residential

purpose is exempted from GST
• Rent for businesses would attract GST at
18%

CASE STUDY
• Project Name: 1 Hallmark Avenue
• Organization Name: RajHeramb Properties
• Organisation Address Details: Row House No 3, Raj Vimal Terraces,
Plot No 28, Ram Nagar Colony, NDA Road Bavdhan Pune, Pune,
MAHARASHTRA 411021

• Project Name: 1 Hallmark Avenue
• RERA Registration No: P52100002760
• Proposed Date of Completion: 31/12/2016
• Revised Proposed Date of Completion: 30/06/2018
• Project Type: Residential
• Survey No 91 2B 2A Ravet Tal Haveli Dist Pune 412101
• Area(In sqmts): 12286.48
• Total Building Count: 8
• Sanctioned Buildings Count: 8

CONCLUSIONS DRAWN FROM THE
CASE STUDY:
• Project had to be registered under MahaRERA (Land area>500 sq.m)
• Time was consumed in understanding RERA and its registration
process.
• The time required for the project completion and the finance has
increased
• Due to RERA, project had a high degree of transparency and
accountability
• If consumers are unable to make any timely payment, they have to bear
heavy penalties as well.
• The defects liability period has increased from 3 years to 5 years.

Questionnaire Survey
• No. of attributes: 33
• No. of respondents: 30(till date)
• Expected No. of respondents: 2*No. of respondents= 70(nearly)
• The rating system for responses will be based on the
demographic profile of respondents
• RERA, GST Questionnaire - Google Forms.pdf
• satish warade response.pdf
• RERA, GST Questionnaire (Responses) (1).xlsx

SPSS Analysis
• Reliability analysis of data was performed

using SPSS
• OUTPUT.pdf
• The results are as follows
Reliability Statistics
Cronbach's Alpha
Based on
Standardized
Cronbach's Alpha Items N of Items
.856 .862 33

The Cronbach’s alpha value hence obtained has ‘GOOD’
internal consistency, hence the data is reliable

TOPSIS METHOD
• Technique of Order Preference by Similarity

to Ideal Solution
• This method considers three types of
attributes or criteria
– Qualitative benefit attributes/criteria
– Quantitative benefit attributes
– Cost attributes or criteria

TOPSIS METHOD
• In this method two artificial alternatives are
hypothesized:
• Ideal alternative: the one which has the best level for
all attributes considered.
• Negative ideal alternative: the one which has the
worst attribute values.
• TOPSIS selects the alternative that is the closest to

the ideal solution and farthest from negative ideal
alternative.

Methodology adopted:
• The detailed study of MahaRERA shall be carried out.
• Thorough acquaintance with the GST taxation system on
the real estate sector.
• Discussions with RERA consultants (CA) and GST
experts will be done to understand the practical scenario.
• Case studies of builders and developers will be taken for
the study of combined impact of RERA and GST.
• Questionnaire survey

Importance of RERA and GST for a
construction manager
• Responsible for the cost and time
schedules
• Responsible for getting the project
sanctioned
• Responsible for dispute settlement

Reference
• https://maharera.mahaonline.gov.in (26/11/2017)
• http://www.gstcouncil.gov.in/gst-rates (30/12/2017)
• Delloite – RERA-Need for change April 2017 (access from
https://www2.deloitte.com/us/en.html) 21/1/2018
• A booklet on The Real Estate Bill 2016 (access from http://hdfcrealty.com/)
22/2/2018
• https://www.99acres.com/raj-heramb-hallmark-avenue-ravet-pune-npxid-
r254963 (10/03/2018)
• https://maharerait.mahaonline.gov.in//PrintPreview/PrintPreview/UHJvamVjdE
lEPTMyMTAmRGl2aXNpb249NSZVc2VySUQ9MzcyNDMmUm9sZUlEPTEm
QXBwSUQ9MzU1NjgmQWN0aW9uPVNFQVJDSA%3d%3d (18/03/2018)


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IMPLICATIONS OF RERA AND GST ON

BUILDERS AND DEVELOPERS

Presented by Under the guidance of

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

• To investigate the effects of the RERA bill

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

• Government of India enacted the Real Estate

College of Engineering Pune (COEP)

IMPROVE THE PERCEPTION OF THE SECTOR AMONG VARIOUS STAKEHOLDERS

UNIFORM REGULATORY ENVIRONMENT

COMMERCIAL AND RESIDENTIAL LAND UNDER PROJECTS WHICH DO NOT HAVE

RENOVATION OR REPAIR OR REDEVELOPMENT PROJECTS NOT INVOLVING

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

SN Salient Issues Provision in MOFA, 1963 Provision in RERA, 2016

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

• RERA does not cover rental arrangements or agreements in any

College of Engineering Pune (COEP)

• Pravin Hiwale vs Darode Jog Homes Pvt.

College of Engineering Pune (COEP)

Contravention of the provisions Penalty up to 10% of estimated

Contravention of Section 4 i.e.., Penalty up to 5% of the

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

• Proposes a unified nation-wide value added tax

College of Engineering Pune (COEP)

MANUFACTURE SALE SERVICE

College of Engineering Pune (COEP)

2 Place of Origin based taxation Destination based taxation

College of Engineering Pune (COEP)

4 Service Tax Tax levied by the Tax will be subsumed in

College of Engineering Pune (COEP)

7 Tax rates Different tax rates for

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

DIRECT TAX INDIRECT TAX= GST

INCOME INTRA- INTER-

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)

College of Engineering Pune (COEP)