TAX DISCUSSIONS OVER A CUP OF TEA

TAX DISCUSSIONS OVER A CUP OF TEA Mr. Pappu , is an NRI who is of the opinion that the Indian Financial system is very weak and requires a l

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Apr 30, 2019

Last update on Apr 30, 2019

TAX DISCUSSIONS OVER A CUP OF TEA Mr. Pappu, is an NRI who is of the opinion that the Indian Financial system is very weak and requires a lot of reforms. After returning to India, he noticed that India runs on Chai (Unlike the country from where he comes from which runs on other drinks) and enters a tea shop to have a hot chai as he wants to understand the madness behind Chai. There, he meets Mr. Chowkidar, who runs the Tea shop and engages with a conversation with him. Pappu: GST on real estate has become a separate subject as such. How can a common man understand such things(Orders tea) Chowkidar: Pappu, now carefully listen to me. I have read all the notifications and understood the crux of real estate impact due to the recent changes. You better tell your brother in law, mother, sister whoever dealing in real estate to be careful!!! (Hands over tea to Pappu) Pappu: (Shocked that Chowkidar knows about his family very well!!) Chowkidar: Basically, these changes can be categorised into three areas:

Rate Changes
Input Tax Credit Changes
Transitional Provisions

Now, Pappu listen to me. I will explain the rate changes and ITC Changes. Transitional provisions for ITC has been very well explained in the Annexure I and Annexure II of the notification with the examples. I will tell you the essence of the transitional provisions. Let us look at the Rate changes: To make it simple, we can divide the rate changes further as given below:

0.75%(after 1/3rd deduction for land it becomes 0.5%)
3.75%(after 1/3rd deduction for land, it becomes 2.5%)
6%(after 1/3rd deduction for land, it becomes 4%
9%(after 1/3rd deductoin for land, it becomes 6%)

Types of projects that would fall under the 0.75% category:

Construction of affordable residential apartments by a promoter in Residential Real Estate Project(RREP)
Construction of affordable residential apartments by a promoter in a Real Estate Project other than RREP

Types of projects that would fall under the 3.75% category:

Construction of other than affordable residential apartments by a promoter in Residential Real Estate Project(RREP)
Construction of other than affordable residential apartments by a promoter in a Real Estate Project other than RREP
Construction of commercial apartments in an RREP

Common conditions for the above types of construction is that these apartments may commence on or after 1.4.2019 or

these may be in an Ongoing project in respect of which the promoter has not exercised an option to pay central tax at the old rates;
The above apartments are intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after the issuance of the completion certificate, where required by the competent authority or after its first occupation, whichever is earlier.

Types of projects that would fall under the 6% category: Predominantly, Composite supply of works contract as defined in clause 2(119) of the Act supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration is charged at 6%. However, for the following services relating to supply of works contract Services, the rate shall be changed automatically to .75%/3.75% rate slab unless an option to pay tax at 6% is exercised by filing the prescribed form by 10^th May 2019:

Composite supply of works contract services of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of
- a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv AwaasYojana-
- a civil structure or any other original works pertaining to the ln-situ redevelopment of existing slums using land as a resource, under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)
- a civil structure or any other original works pertaining to the Beneficiary led individual house construction / enhancement under the Housing for All (Urban) Mission/Pradhan MantriAwasYojana
- a civil structure or any other original works pertaining to the Economically Weaker Section (EWS) houses constructed
- under the Affordable Housing in partnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban);
- a civil structure or any other original works pertaining to the houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section EWS)/ Lower Income Group (LIG)/ Middle Income Group-1 (MlG-1)/ Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)
- a single residential unit otherwise than as a part of a residential complex
- low-cost houses up to a carpet area of 60 square metres per house in an affordable housing project which has been given infrastructure status vide notification of Government of India, in Ministry of Finance, Department of Economic Affairs vide F. No. 13/6/2009-INF, dated the 30^th March,2017.
- a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017

Further the Composite supply of works contract as defined in clause 2(119) of the Act supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments which commences on or after 01.04.2019 or in an ongoing project where the option to pay concessional tax by the promoter has not been exercised, the tax shall be payable @ 6%. In other words where the promoter pays the tax at 0.75%/3.75% depending on the category of the apartments, the sub-contractor shall charge 6% as the rate for his services to the promoter. Types of projects that would fall under the 9% category: For the following types of projects, the rate shall be changed automatically to 0.75%/3.75% rate slab unless an option to pay tax at 9% is exercised by filing the prescribed form by 10^th May 2019:

Construction of commercial apartments by a promoter in a REP other than RREP.
Construction of on-going residential apartments other than affordable projects (If it is an affordable project one has to compulsorily opt for the revised concessional rates unless it falls under any of the special schemes of the Govt., given above.) But an option is given for an on-going other than affordable residential project.

Pappu: (Cant believe Chowkidars knowledge on these matters and wants to test them). Now, tell me what is an RREP, Affordable apartments and on-going project.. Chowkidar: (Chai! Garam Chai! Kadak Chai!-sells tea) RREP- where the carpet area of the commercial apartments is not more than 15% of the total carpet area of all the apartments Affordable apartments- residential apartment in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the promoter has not exercised option in the prescribed form to pay central tax on construction of apartments at the older rates, having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than forty five lakhs rupees. Pappu, I can understand that you cant understand this definition. In simple terms, this means an apartment where the area is less than 60/90 square meters in metropolitan/non-metropolitan cities and the value is less than Rs.45 Lakhs and the promoter has not opted to pay tax at older rates. Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with their respective geographical limits prescribed by an order issued by the Central or State Government in this regard It would also cover the apartments being constructed under the special schemes of the Government where the option to pay tax at 6% has not been availed. On-going project- Simply speaking, it is those projects commencement certificate has been obtained on or before 31.3.19 and completion certificate has not been obtained before 31.3.19 and will include apartments being constructed that have been partly or wholly booked on or before 31.3.19. Pappu(Orders another Chai to listen more carefully): Now Chowkidar, tell me about the conditions attached to these concessional rates and non-concessional rates. Chowkidar(Provides a sugar less tea to Pappu- to signify that the forthcoming conversation is a sugar coated pill to the real estate sector): The forced concessional rates (on new projects) and the optional concessional rates on the on-going projects have some stringent conditions, which I had referred to as input tax credit changes above. These are:

Tax shall be paid by way of Cash Only. Pappu!! not literally cash(which you would want to pay). But by way of debiting the Electronic Cash Ledger. Electronic Credit Ledger shall not be used unless one has a transitional credit available as calculated in the manner provided in Annexure I and Annexure II.
Eighty percent of value of input and input 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], used in supplying the service shall be received from registered supplier only
If the taxpayer fails to procure 80% from registered persons, then he shall pay the tax on Reverse Charge Basis at 18% to compensate the shortfall.
However, if cement is purchased from an unregistered dealer, then tax has to be paid on RCM at the rate specified for cement and the other items shall be paid at an RCM of 18%.
Project wise account of inward supplies from registered and unregistered dealers to be maintained.
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.

(Pappu meanwhile keeps the tea down, takes a paper and pen and starts writing down what the Chowkidar is saying so that the same can be conveyed to his brother in law.)

Tax on cement shall be received from unregistered person shall be paid in the month in which cement is received.
Another compliance change/burden is that ITC Not availed shall be reported every month as ineligible credit in GSTR-3B.

(Pappu takes a deep breath and completes the notes). This is not yet over Pappu!!. If the sub-contractor is engaged by a promoter where he is building affordable projects, the rate for which is 6%, the following conditions shall apply:

Carpet area of affordable residential apartments is at least 50% of the total carpet area of all the apartments
If this condition gets violated, then the promoter shall be liable to pay at RCM of the shortfall arising on account of tax payable on the service at the applicable rate and 6% concessional rate.

Pappu: Alright saab, but can you tell me what are the transitional provisions applicable to the promoters w.r.t ITC Chowkidar: The notification explains the maths behind arriving that portion of Input tax credit where I have opted to pay tax at concessional rates and I will explain the logic. You can refer the notification as the same is quite clear and it involves formulae which you cant understand Pappu. The crux is to arrive at ITC attributable to projects where the time of supply is after 01.04.2019 on the ITC taken from the 1^st of July 2017 to 31^st March 2019, as the condition is that one should not take any ITC Credit for concessional projects. Hence, if a project is on-going one, a promoter would have enjoyed the ITC benefit by taking the credit of the same during the period before 31.3.19. The objective is to ensure that unjust enrichment shall not take place as the ITC pertaining to projects where time of supply is after 01.04.19 are not allowed to be taken credit for. This is a dangerous move, as far the Government is concerned as it involves relooking of the ITC Credit from 01.07.17 to 31.3.19 and working out the eligible credits. Hope this is a one-time exercise and redoing it for any other reason in the future would only cause confusion amongst the taxpayers. As the law is still at its nascent stage, one can afford to do such a big exercise. The details of the scheme is explained in a straight forward manner in the notification no 03/2019. You can go home and read now for a better understanding. Pappu runs away after Chowkidars deep understanding of the law (as usual without paying for the Chai). Chowkidar: Abhi kown hei chor Disclaimer: The above article is an entertainment based article comprising tax related updates along with spoofs of news, articles, events and incidents. The author does not intend either directly or indirectly to hurt the sentiments of any individual, community, race or religion. Readers are advised to read the article purely in the spirit of infotainment. Any information contained in this article is subject to change. Readers of this article are advised to seek their own professional advice before taking any course of action or decision, for which they (the readers) are entirely responsible, based on the contents of this article. The author expressly disclaim any liability arising from the same.