GST on Real Estate & REIT — 5% Under-Construction, Completed Exempt

THE GREAT REAL ESTATE GST SHIFT (April 2019): BEFORE 1 April 2019: Under-construction property: 12% GST (effective 8% after 1/3 land abatement). Developers claimed ITC on: Cement (28%), Steel (18%), Labour (18%), Architect (18%), Legal (18%), Electrical (18%), Plumbing (18%), Lifts (18%), Fire safety (18%). Net cost after ITC: much lower than 12% headline rate. Many developers passed ITC benefit — effective cost to buyer: 4-5% net GST. PROBLEM: (1) Many developers did NOT pass ITC benefit — collected 12% AND kept ITC savings. Anti-profiteering complaints: 100+ cases against developers. (2) ITC tracking complex — authorities couldn't verify if developers legitimately claimed ITC on construction or diverted to other projects. (3) Affordable housing developers complained that 8% effective GST was too high. AFTER 1 April 2019: Non-affordable: 5% without ITC. Affordable (≤₹45L): 1% without ITC. WHO BENEFITS: (1) SMALL DEVELOPERS (build 1-2 projects): Simpler compliance — no ITC tracking across years of construction. No anti-profiteering risk. 5% headline = transparent to buyer. (2) AFFORDABLE HOUSING: 1% GST is genuinely lower than any previous regime. PMAY beneficiaries save ₹30,000-₹45,000 per flat. (3) BUYERS: Clear pricing — 'what you see is what you pay'. No ambiguity about whether ITC benefit passed or not. WHO LOSES: (1) LARGE DEVELOPERS (DLF, Godrej, Prestige): Had massive ITC pools (₹100-500 crore across projects). Under old regime: 12% output − 10-11% ITC = 1-2% net cost. Under new regime: 5% output + 0 ITC = 5% cost + embedded 18% input tax = 12-15% total tax cost. RESULT: flat prices increased 3-5% despite 'lower GST rate'. (2) LUXURY SEGMENT: Higher cost passed to buyers. Premium projects in metro cities: embedded tax of 15%+ vs old regime 8%.

JOINT DEVELOPMENT AGREEMENT (JDA) — GST TREATMENT: WHAT IS JDA: Landowner gives development rights to builder. Builder constructs apartments/villas. Builder gets some units to sell. Landowner gets some units (consideration for land). TWO SUPPLIES: (1) Landowner → Builder: Supply of 'Transfer of Development Rights' (TDR). Service: 18% GST. But: TIME OF SUPPLY deferred to date of completion/OC (special provision). So landowner's GST liability arises only when OC is issued — not at JDA signing. (2) Builder → Landowner: Supply of 'construction service'. Rate: 5% (non-affordable) or 1% (affordable). Also triggered at OC issuance. VALUATION: How to value landowner's units? Value of similar apartments in same project (sold to third parties). If no comparable sales: cost + margin method. EXAMPLE: Land value: ₹10 crore. Builder constructs 100 flats. Agreement: 30 flats to landowner, 70 to builder. Each flat market value: ₹50 lakh. SUPPLY 1: Landowner to builder (TDR): Value: 30 flats × ₹50L = ₹15 crore (consideration received in kind). GST: 18% on ₹15 crore = ₹2.7 crore (landowner's liability). But: EXEMPTION available if builder pays GST on construction of landowner's flats. If builder pays GST on construction service to landowner → TDR exempted (to avoid double taxation). SUPPLY 2: Builder to landowner (construction): Value: 30 flats × ₹50L = ₹15 crore. GST: 5% on ₹15 crore (after 1/3 land deduction) = 5% × ₹10 crore = ₹50 lakh. NET EFFECT: Builder pays ₹50 lakh GST on landowner's units. Landowner: TDR exempt (because builder paid GST on construction). This was done to prevent double taxation of same transaction.

RESIDENTIAL RENT RCM — DETAILED MECHANICS: THE CHANGE (Notification 05/2022-CT(R) dt. 13.07.2022): Before 18 July 2022: ALL residential rent was EXEMPT from GST (whether tenant was registered or not). After 18 July 2022: Residential rent to REGISTERED PERSON → 18% under Reverse Charge Mechanism (RCM). Residential rent to UNREGISTERED PERSON → still EXEMPT. WHO IS A 'REGISTERED PERSON': Any entity with GST registration (company, LLP, proprietorship, partnership, professional with GST registration). Includes: composition scheme dealers. PRACTICAL EXAMPLES: EXAMPLE 1 — Company leases flat for employee: Company (registered) rents flat at ₹50,000/month from individual landlord. Company pays ₹50,000 to landlord (no GST charged by landlord). Company self-assesses RCM: 18% of ₹50,000 = ₹9,000. Company deposits ₹9,000 (₹4,500 CGST + ₹4,500 SGST) in GST return. Company claims ITC of ₹9,000 in same return (if eligible for ITC). NET EFFECT for company: ZERO (pay ₹9,000 RCM, claim ₹9,000 ITC). CASH FLOW neutral — but compliance burden. EXAMPLE 2 — Salaried employee rents flat: Employee (NOT GST registered) rents flat at ₹30,000/month. Completely EXEMPT. No change from pre-July 2022 position. EXAMPLE 3 — Proprietor (GST registered) rents personal house: Proprietor has GST registration for business. Rents residential flat in PERSONAL capacity (not for business). AMBIGUITY: Is personal rent by a registered person taxable? CBIC clarification: if rent is for 'furtherance of business' → 18% RCM. If purely personal (unrelated to business) → arguments exist for exemption. SAFE APPROACH: Pay RCM (claim ITC if in business). EXAMPLE 4 — Composition dealer rents flat for business: Composition scheme holder (e.g., small trader) rents flat for godown-cum-residence. Must pay 18% RCM on rental. CANNOT claim ITC (composition scheme → no ITC). Actual cost increase: 18% on rent — passed to business expenses. IMPACT ON LANDLORDS: Landlords themselves: NO impact. They continue receiving same rent. No new registration requirement for landlords (if only renting residential property to individuals). But: if landlord is already registered (e.g., has shop + residential properties) — must ensure proper treatment. IMPACT ON CORPORATE INDIA: Companies providing 'house rent allowance' (HRA) to employees: Reimbursement: no GST (salary perquisite). Company-leased accommodation: 18% RCM (ITC available). Company-owned accommodation: no GST (self-supply exemption). BEST STRUCTURE: Employee takes house in OWN name (personal lease) → exempt. Then claims HRA from company → salary component (no GST).

REIT GST FRAMEWORK — COMPLETE PICTURE: STRUCTURE: REIT (listed trust) → holds SPVs (Special Purpose Vehicles) → SPVs own commercial properties → tenants pay rent to SPVs → SPVs distribute to REIT → REIT distributes to unitholders. GST AT EACH LEVEL: (1) TENANT → SPV (Rent): Tenant (Microsoft, TCS, etc.) pays 18% GST on office rent to SPV. SPV (Embassy Office Parks SPV, Mindspace SPV) collects 18%, files GST return. SPV claims ITC on property maintenance, security, housekeeping, repairs. (2) SPV → REIT (Interest/Dividend): Interest paid by SPV to REIT on inter-corporate loans: EXEMPT from GST (financial service between related entities — excluded from tax). Dividend from SPV to REIT: NOT a supply — no GST. (3) REIT → UNITHOLDERS (Distribution): Distribution to investors (quarterly): NOT a supply of goods/services — no GST. Interest income distributed: exempt. Dividend distributed: not taxable. Capital repayment: not supply. Investors pay Income Tax (not GST) on REIT distributions. (4) REIT MANAGER → REIT (Management Fee): REIT manager (Embassy REIT Management Services): charges management fee (typically 0.5-1% of assets). 18% GST on management fee. REIT pays 18% and claims ITC (against rental GST collected). (5) PROPERTY EXPENSES: Security services: 18% GST (ITC available to SPV). Housekeeping: 18%. Maintenance contracts (AMC for elevators, HVAC): 18%. Brokerage (for leasing): 18%. Legal/advisory: 18%. All these: ITC available to SPV → offset against 18% collected from tenants. NET GST POSITION OF REIT/SPV: Collect: 18% from tenants on rent. Pay: 18% on management fee, maintenance, security, etc. Net payment to government: difference (usually 10-14% of rent as net GST payment). RETAIL REIT (Nexus Select Trust): Revenue share from retail brands: 18% GST. Advertising income: 18% GST. Parking income: 18% GST. Food court (if REIT operates): 5% (restaurant service). Events/activations: 18% GST.