Goods and Service Tax is a reality now. In this article, we have tried to capture the implications for Real Estate Sector under various transaction in a tabular for for easy understanding.

Life Cycle of Real Estate Development

Land Owner--------A---------Developer----------B-------Buyer----------C---------Tenant

Transaction Description Current Regime GST Regime
VAT Service tax
A.1 Developer develops the land on behalf of the land owner.
  • The Activity carried out by the Developer for the land owner would qualify as Works Contract on which VAT would be payable.
  • Applicable tax rate is 12.5% on 75% of the total consideration receivable from the land-owner.
  • The Developer is eligible to claim input credit on the goods used for execution of the same.
  • The Activity carried out by the Developer for land owner would qualify as Works Contract Service on which Service Tax would be payable.
  • Applicable tax rate is 15% on 40% of value of contract including value of land.
  • Input Credit of input goods not allowed to the developer.
  • The Activity carried out by the Developer for the land owner would be deemed as Supply of Service being a Works Contract Service, which is taxable @ 18% with full tax credit.
A.2 Land owner enters in to agreement to sell the property to the Buyers.
  • The Activity carried out by the Developer for the land owner would qualify as Works Contract on which VAT would be payable.
  • Applicable tax rate is 12.5% on 75% of the total consideration receivable from the land-owner.
  • The Developer is eligible to claim input credit on the goods used for execution of the same.
  • The Agreement entered into by land owner with the buyers is taxable as Construction Service.
  • Applicable tax rate is 15% on 30% of the value of agreement inclusive of the value of land.
  • Input Credit of input goods not allowed to the land owner.
  • The Input of Service Tax paid by the land owner to the Developer shall be allowed to the land owner.
  • The Agreement between land owner and buyer would be deemed as Supply of Service being a Construction Service, which is taxable @ 12% of the full value including with full tax credit including value of land.
  • The Input of GST paid by land owner to the Developer shall not be allowed to the land owner.
B Developer is authorized by the land owner to enter in to agreement to sell the property with the Buyers after developing the property on behalf of buyers.

(Tripartite Agreement)
  • The Activity carried out by the Developer for the land owner and buyer under tripartite agreement would qualify as Works Contract on which VAT would be payable.
  • Applicable tax rate is 12.5% on 75% of the total consideration receivable from the land-owner(in the form of land) and the buyer excluding the value of land
  • The Developer is eligible to claim input credit on the goods used for execution of the same.
  • The Tripartite Agreement is taxable as Construction Service.
  • Applicable tax rate is 15% on 30% of the value of agreement inclusive of the value of land.
  • Input Credit of input goods not allowed to the land owner.
  • The Tripartite Agreement between land owner, developer and buyer would be deemed as Supply of Service being a Construction Service, which is taxable @ 12% with full tax credit.
  • Value of land is not to be included.
C. Rental of Immoveable Property Not applicable
  • The Renting Activity is chargeable to service tax @ 15% on the value of rent.
  • The Buyer shall be eligible to claim input of the input services used.
  • No credit is available for the service tax paid to the developer or land owner
  • The lease Agreement between tenant and buyer would be treated as Supply of Service being a Renting of immoveable service, which is taxable @ 18% with full tax credit.
  • Input of GST paid to developer or land owner shall not be allowable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.