Payment of Tax under Reverse Charge by Promoter Developer

[Rachit Agarwal]

COMPLIANCE OF CONDITIONS FOR PAYMENT OF CENTRAL TAX @ 3.75%/ 0.75% AND STATE TAX @ 3.75%/ 0.75% ON SUPPLY OF CONSTRUCTION SERVICES OF RESIDENTIAL APARTMENT

CBIC Vide Notification No- 3/2019 Central Tax dated 29.03.2019

Construction of Residential Apartment in Residential Real Estate Project of Real Estate Project shall be taxable at a central tax rate of 3.75%/ 0.75% which commences on or after 01.04.2019

Conditions

1. Credit of Input Tax has not been taken
2. Eighty percent of value of input and input services used in supplying the service shall be received from registered supplier only
3. Inputs and input services on which tax is paid on reverse charge basis shall be deemed to have been purchased from registered person

Tax Rate under Reverse Charge:

Where value of input and input services received from registered suppliers falls short. promoter on value of input and input services comprising such shortfall at the rate of eighteen per cent on reverse charge basis

Cement Purchase: cement is received from an unregistered person, the promoter shall pay tax on supply of such cement at the applicable rates on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 (12 of 2017), shall apply to him as if he is the person liable for paying the tax in relation to such supply of cement

Maintenance of Records

The promoter shall maintain project wise account of inward supplies from registered and unregistered supplier

Submission of Declaration

The promoter shall maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax payments on the shortfall at the end of the financial year and shall submit the same in the prescribed form electronically on the common portal by end of the quarter following the financial year

Payment of Tax Liability

The tax liability on the shortfall of inward supplies from unregistered person so determined shall be added to his output tax liability in the month not later than the month of June following the end of the financial year

Tax on cement   received   from unregistered person shall be paid in the month in which cement is received.

Report of Tax in GSTR 3B

Input Tax Credit not availed shall be reported every month by reporting the same as ineligible credit in GSTR-3B

CBIC Vide Circular F. No. 354/32/2019-TRU, dated 14-5-2019

Point No- 18-

For the purpose of Calculation of 80% of threshold limit for the payment of tax under reverse charge u/s 9(4), value of Exempted Goods/ Services shall be included in the value of unregistered persons.

Our Comments: Interest being the exempted service will be included.

Point No- 19

Value of developments rights shall not be included for the computation of threshold limit of 18%

(Please refer to the illustrations in annexure-III)

Annexure III

Illustration 1 :

A promoter has procured following goods and services [other than capital goods and services by way of grant of development rights, long term lease of land or FSI] for construction of a residential real estate project during a financial year.

Sl. No.	Name of input goods and services	Percentage of input goods and services received during the financial year	Whether inputs received from registered supplier? (Y/N)
1	Sand	10	Y
2	Cement	15	N
3	Steel	20	Y
4	Bricks	15	Y
5	Flooring tiles	10	Y
6	Paints	5	Y
7	Architect/designing/CAD drawing etc.	10	Y
8	Aluminium windows, Ply, commercial wood	15	Y

In this example, the promoter has procured 80 per cent. of goods and services [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], from a GST registered person. However, he has procured cement from an unregistered supplier. Hence at the end of financial year, the promoter has to pay GST on cement at the applicable rates on reverse charge basis.

Illustration 2 :

A promoter has procured following goods and services [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], for construction of a residential real estate project during a financial year.

Sl. No.	Name of input goods and services	Percentage of input goods and services received during the financial year	Whether inputs received from registered supplier? (Y/N)
1	Sand	10	Y
2	Cement	15	Y
3	Steel	20	Y
4	Bricks	15	Y
5	Flooring tiles	10	Y
6	Paints	5	N
7	Architect/designing/CAD drawing etc.	10	Y
8	Aluminium windows, Ply, commercial wood	15	N

In this example, the promoter has procured 80 per cent. of goods and services including cement from a GST registered person. However, he has procured paints, aluminum windows, ply and commercial wood etc. from an unregistered supplier. Hence at the end of financial year, the promoter is not required to pay GST on inputs on reverse charge basis.

Illustration 3 :

A promoter has procured following goods and services [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], for construction of a residential real estate project during a financial year.

Sl. No.	Name of input goods and services	Percentage of input goods and services received during the financial year	Whether inputs procured from registered supplier? (Y/N)
1	Sand	10	N
2	Cement	15	N
3	Steel	15	Y
4	Bricks	10	Y
5	Flooring tiles	10	Y
6	Paints	5	Y
7	Architect/designing/CAD drawing etc.	10	Y
8	Aluminium windows	15	N
9	Ply, commercial wood	10	N

In this example, the promoter has procured 50 per cent. of goods and services from a GST registered person. However, he has procured sand, cement and aluminum windows, ply and commercial wood etc. from an unregistered supplier. Thus, value of goods and services procured from registered suppliers during a financial year falls short of threshold limit of 80 per cent. To fulfill his tax liability on the shortfall of 30 per cent. from mandatory purchase, the promoter has to pay GST on cement at the applicable rate on reverse charge basis. After payment of GST on cement, on the remaining shortfall of 15 per cent., the promoter shall pay tax @ 18 per cent. under RCM.

Discussions to this article

[SELVAKUMAR MUTHURAJ]

Dear Sir: Fantastic Article!!! If the builder is not registered under RERA, whether RCM will be applicable ?