Applicability of GST RCM on TDR, Goods and Services Tax - GST

[Kalpesh Shah]

Respected Seniors & Experts

I have a Querry Relating to GST RCM on TDR as below :

Facts :

My client is a Builder Developer. He has purchased a Land by entering into Conveyance Agreement. He has also purchased TDR for which will be used for construction of Additional floors. but nothing as such is mentioned in the TDR Agreement.

Building is of Ground + First Floor (Commercial Units ) & Upper 9 floors for Residential units.

My question is :

Whether GST RCM is liable for Construction of Commercial Area with respect to Purchase of TDR ?

When calculating RCM in respect of unbooked Residential Units, I need to consider Whole constructed area or only upper floors ?

Thank you in Advance

Posts / Replies

[YAGAY andSUN]

 

Under the Goods and Services Tax (GST) regime in India, the Reverse Charge Mechanism (RCM) applies to the purchase of Transfer of Development Rights (TDR) for construction purposes. This means that the recipient of the TDR, typically the builder or developer, is responsible for paying GST directly to the government.

1. GST RCM Applicability for Commercial Construction with TDR Purchase:

When a builder purchases TDR for constructing additional floors, including commercial areas, GST under RCM is applicable. The builder must pay GST on the value of TDR used for constructing commercial spaces. This is because the exemption on TDR under GST is specifically available for residential apartments, not for commercial constructions.

2. Calculating RCM for Unbooked Residential Units:

In a mixed-use development comprising both residential and commercial units, the calculation of GST under RCM for unbooked residential units involves the following steps:

• Determine the Total Value of TDR: Calculate the total GST payable on TDR used for the entire project, considering both residential and commercial areas.
• Allocate GST to Residential Units: Since the exemption applies only to residential apartments, allocate the GST payable proportionally to the residential units based on their carpet area.
• Identify Unbooked Residential Units: Calculate the number of residential units that remain unbooked as of the date of issuance of the completion certificate or first occupation.
• Calculate GST for Unbooked Units: Apply the following formula to determine the GST payable under RCM for unbooked residential units:

GST on Un-booked Residential Units = (GST Payable on Residential TDR×Carpet Area of Unbooked Residential Units)/Total Carpet Area of Residential Units

• Apply Tax Rate Caps: Ensure that the GST payable does not exceed 1% of the value for affordable residential apartments and 5% for non-affordable residential apartments, as per GST regulations.

It's important to note that the exemption on TDR is available only for residential apartments that are booked before the completion certificate is issued or before the first occupation, whichever is earlier. Therefore, GST under RCM is applicable to unbooked residential units and all commercial units.

Conclusion:

GST under RCM is applicable on the purchase of TDR for constructing commercial areas. For unbooked residential units in a mixed-use development, GST under RCM is calculated based on the proportion of unbooked residential area to the total residential area, subject to the specified tax rate caps. It's advisable to consult with a GST professional or legal expert to ensure compliance with all applicable provisions and accurate calculation of GST liabilities.

Disclaimer: This is Not a Legal Opinion. Only for discussion purpose and enrichment of Knowledge. 

[Sadanand Bulbule]

Dear Yagan Sir

Kindly clarify how TDR on construction of residential apartments is exempt under the GST Act with relevant notification etc.?