17 Jan 2019Posted By: Mudit Handa


How can GST Input Credit be claimed in Real estate sector?

Real estate is indeed one of the most substantial and profitable sectors of our economy. This is the undeniably a lucrative market as it involves rapid growth in the terms of revenue generation.

It can’t be negated that the Goods and Service Tax regime has increased ease of doing business, just as accounting and legal compliances have now become more prompt and hassle-free.

Yet the investors, as well as dealers of the realty market, are encountering certain difficulties and confusions due to complicated GST framework in the real estate sector.

The complexities faced by the realtors having GST registration in respect of GST on real estate have been duly considered by the tax authorities. Moreover, the GST council is working on its idea to bring real estate under GST Composition Scheme.

One of the trickiest issues in GST is of Credit Availment and Reversals in Real estate sector. The calculation of the input credit and its reversal is a very confusing task. The detailed concept and procedure of GST input credit in real estate will be discussed here.

Till date, CBIC has clarified and revised several provisions with respect to Output GST Rates, Input Tax Credit (ITC) and the Effective Tax Rate on Building Construction. In order to understand the process of credit availment in Real estate, we need to discuss the complete system of Input Tax Credit under Real estate sector.

 

#1. What is the system of Input Credit under Real estate sector?

The system of credit availability of GST on real estate is classified into 3 segments:–

  1. Credit availment
  2. Credit blockage
  3. Credit reversal.

These segments have been discussed below in detail.

 

#2. What is meant by Credit Availment under GST?

As per the Section 16(1) of the CGST Act-2017, any dealer having GST registration is allowed to avail input tax credit of GST paid on inputs, in the course of furtherance of business.

Hence, a real-estate developer having GST registration is entitled to claim input credit of all inputs procured by him that were used in the course or furtherance of his business.

 

#3. How is Credit blockage applicable in real-estate?

The list of blocked input credits is given u/s 17(5) of the CGST Act-2017. Out of them, blocked credits relevant for the real-estate developer are given u/s 17(5)(c) & 17(5)(d).

  • As per section 17(5)(c), if the recipient receives works contract services, he will not be is eligible to claim input of GST on works contract services unless he himself is the provider of works contract services.
  • Now, the question arises: "Whether the developer is eligible to claim input of GST levied by his sub-contractor against works contract services?" The answer is, a contractor undertaking a works contract can get input credit of GST charged by another contractor.
  • However, section 17(5)(d) restricts a developer having GST registration from claiming GST input in case of construction of immovable property. Even if such inputs procured for construction have been used for the furtherance of his business, the input credit won’t be available to him.

Refer to the  for more details.

 

#4. What is meant by Credit Reversal under GST?

  • Section 17(2) read with Section 17(3) of the CGST Act-2017, state that the input credit used for the sale of land or building after receiving the completion certificate shall be reversed.
  • The procedure for credit reversal is given under Rule 42 which applies in cases where the exempt & taxable supplies are provided together. A developer in such case has to apportion the credit in the ratio of exempt: taxable supplies.

The rules regarding input credit in the case of Real estate sector as explained above will definitely help the buyers as well as Real estate developers having GST registration.

 

If you need any sort of help on GST registration, feel free to contact our business advisor at 8881-069-069.

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