The 34th GST Council held on 19 March 2019, announced the modalities for the lower effective GST rate for Real Estate Sector. The slashed GST rate i.e. 1% in case of affordable houses and 5% on construction of houses other than affordable house came into effect from April 1, 2019, through Notification No. 03/2019 – CT(R) dated 29th March 2019 to encourage the demands for properties.
However, these new GST rates were available subject to certain conditions, including the unavailability of ITC for builders/developers opting in for the benefits of a low GST rate. In case of ongoing projects (projects for which construction and booking began before 1st April 2019 but not completed by 31st March 2019), the builder shall be liable to reverse Input Tax Credit (ITC) by applying the formula stated in Annexure of notification, within the due date of 20th September.
Calculation of ITC Reversal
As stated in the Annexure of notification, the following builders/ developers are required to comply with the below-given formula to calculate the reversal of ITC.
Components of the formula
-
- Tx = ITC on inputs and input services attributable to the construction of residential and commercial portion, where ToS (time of supply) is on or after 01.04.2019
- T = Total ITC availed from 01.07.2017 to 31.03.2019 including transition credit (whether or not utilised)
- Tr = ITC attributable to the construction of residential portion in the REP where ToS (time of supply) is before 01/04/2019.
- Tc = ITC attributable to the construction of a commercial portion in the REP.
- Tr = ITC attributable to the construction of residential portion in the REP where ToS (time of supply) is before 01/04/2019.
- Te = ITC attributable to the construction of commercial and residential portion where ToS (time of supply) is before 01/04/2019 and Te shall be calculated as Tc + Tr.
- F1 = carpet area of residential apartment / Total carpet area of the residential and commercial apartment.
- F2 = Total carpet area of residential apartment booked before 01.04.2019 / Total carpet area of a residential apartment.
- F3 = Value of supply for residential apartment booked before 01/04/2019 where ToS (time of supply) is before 01/04/2019 / Total value of supply for such booked apartments.
- F4 = 1 % completion of construction as on 31.03.2019.
Calculation of ITC in case of a Residential Real Estate Project (RREP) or a project other than RREP having only residential apartments:
- Where % of completion is not zero or where there is inventory in stock
ITC to be reversed Tx shall be calculated as:
Tx= T-Te
Where, Te=T*F1*F2*F3*F4
- Where % of completion is zero as on 31/03/2019 but invoicing has been done having ToS (time of supply) before 31/03/2019 and no inputs or input services has been received as on 31/03/2019.
The registered person shall be eligible to take ITC on goods and services received on or after 1st April 2019 for construction of residential or commercial portion in the RREP, for which he shall not otherwise be eligible, to the extent of the amount of Te.
Te shall be calculated as:
Te=Tn*F1*F2*F3
Where, Tn = Tax paid on such inputs and input services on which ITC is available under the CGST Act, received in 2019-20 for construction of residential and commercial apartments in the RREP.
Calculation of ITC in case a project other than RREP having both residential apartments as well as commercial apartments:
- Where % of completion is not zero or where there is inventory in stock:
Tx = T – Te
Where, Te = Tc + Tr Tc = T* (carpet area of commercial apartments in project / total carpet area of commercial and residential apartments); and Tr = T*F1*F2*F3*F4
In case the ITC attributable exclusively to the construction of commercial portion (T1) and ITC attributable exclusively to construction of residential portion (T2) are available, a registered person can calculate ‘Te’ as below:
Te = Tc + T1 + Tr
Where, Tc is the ITC attributable to the construction of commercial portion in the REP, calculated as Tc =T3* (carpet area of commercial apartments in the REP/ total carpet area of commercial and residential apartments in the REP);
T3 = T- (T1 + T2)
T1 = ITC attributable exclusively to the construction of commercial portion in the REP.
T2 = ITC attributable exclusively to the construction of residential portion in the REP.
Tr is the ITC attributable to the construction of residential portion in the REP which has the time of supply on or before 31.03.2019 and which shall be calculated as under,
Tr = (T3 + T2)* F1 * F2 * F3* F4, or
Tr = (T- T1)* F1 * F2 * F3* F4
- Where % completion as on 31st March 2019 is zero but invoicing has been done having time of supply before 31st March 2019, and no input services or inputs have been received as on 31st March 2019, “Te” shall be calculated as follows
The registered person shall be eligible to take ITC on goods and services received on or after 1st April 2019 for construction of residential portion in the REP, for which he shall not otherwise be eligible, to the extent of the amount of Te calculated as below:
Te = Tc + TrWhere, Tr = Tn* F1 * F2 * F3
Tn= Tax paid on such inputs and input services on which ITC is available received in 2019-20 for construction of REP.
Tc =Tn* (carpet area of commercial apartments in the REP/ total carpet area of commercial and residential apartments in the REP)
While the calculation of the ITC reversal appears to be a complex process in itself, the registered person is required to pay the amount in either cash or utilizing the accumulated ITC and fill the details in FORM GST ITC- 03.
Furnishing form ITC 03
ITC 03 form is filed by a taxpayer who has to pay an amount equal to the ITC through electronic credit or cash ledger. However, GST ITC 03 is generally required to be filed in two cases, i.e. Taxpayer has opted for composition scheme, or goods or services supplied by the taxpayer become wholly exempt. Furthermore, goods related data has to be uploaded in one of the two tabs in form, i.e.
- Tab for furnishing details of goods with Invoices
- Tab for furnishing details of goods without Invoices
In order to furnish form ITC 03, an assessee needs to calculate GSTIN/ Invoice wise total reversal amount and furnish invoice-wise details in the utility, which can prove to be a tiresome job for big traders who may have many invoices and bulk data.
Furthermore, Form GST ITC -03 has no columns for the ITC reversal. Considering the majority of Input services being builders and real estate developers, the absence of an appropriate column for Input Services in Form GST ITC -03 has been playing a major obstacle for the builders.
FORM GST DRC – 20
In case of a financial crisis, a builder can seek permission to either pay the ITC in installments or a time extension by filing an application in FORM GST DRC – 20 seeking permission to pay the taxes in installments (if the option is available) or time extension for the payment of taxes if he is facing a financial crisis.
Option for paying off the liability via Form DRC-20 is not available in Form ITC-03.
- Is ITC- 03 the right form for furnishing the ITC reversal?
- How should one report Invoices reversal for Input Services?
- In case of payment in installment, is the builder required to upload Form ITC 03 for every partial payment?
As the due date to furnish the respective forms has been closing in, a prompt solution is awaited from the GST council to sort the challenges faced by the builders and Real Estate developers in India. If you happen to face any similar issues, do mention it in the comments below and we shall try to update you as soon as any update is announced.
IRIS Business is a leading GST Suvidha Provider (GSP) providing an easy and efficient GST Solution (IRIS Sapphire) and E-way bill compliance (IRIS Topaz). For any queries, kindly drop us a mail support@irisgst.com or you can also comment the same in the section below.
Mam..
We want to reverse the ITC as per new rule applicable for Real Estate builder, please let us know the process to file Form ITC-03 for this reversal and how to pay interest for late reversal.
Thanks in advance
For such queries, you may have to contact your consultant directly.
let me know what to do with the credits available every month after opting for the 5 % for the residential project
ITC cannot be claimed post opting 5% for residential projects. In your books of accounts you shall directly book it as expense since ITC cannot be claimed
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I had Booked One Under Construction flat in July 2018 in Nagpur City of Maharashtra State, As per the Agreement to Sale the Value of the Property Was 45 Lac and Area Is 57 Sq Mt.
We had Paid Our Money of 15 lac Before April 2019 and Remaining 30 Lac We had Paid After April 2019.
But Currently The Builder is charging 8% GST charges For payment Done Before April 2019( 15Lac X 8%= 1.2 Lac) and Not Passing Us the Benefit of Input Tax credit Which he had Taken Till April 2019 and 5 % (30Lac X 5%= 1.5 Lac) instead of 1% which Is for Affordable Housing Since Our value of flat is 45 Lac and Carpet area is 57 Sq Mt in Non Metro City.
Kindly refer to consultants for such specific queries