Inversion of ITC for Real Estate Developers

The 34th GST Council meeting on 19 March 2019, declared the modalities for the lower successful GST rate for Real Estate Sector. The reduced GST rate which is 1% in case of reasonable houses and 5% on development of houses other than cheap house became effective from April 1, 2019, through Notification No. 03/2019 – CT(R) dated 29th March 2019 to empower the demands for properties.

Also, these new GST rates were accessible subject to specific conditions, including the inaccessibility of ITC for manufacturers/developers picking in for the advantages of low GST rate. In case of progressing projects(projects for which development and booking started before first April 2019 yet not finished by 31st March 2019), the builder will be subject to reverse Input Tax Credit (ITC) by applying the formula expressed in Annexure of notice, inside the due date of 20th September.

Calculating ITC Reversal

As expressed in the Annexure of notification, the accompanying builders/developers are required to consent to the underneath offered formula in calculating the reversal of ITC.

Segments of the Formula

Tx = ITC on inputs and input services inferable from the development of private and business section, where ToS (time of supply) is on or after 01.04.2019

T = Total ITC profited from 01.07.2017 to 31.03.2019 including progress credit (regardless of whether used)

Tr = ITC owing to development of residential bit in the REP where ToS (time of supply) is before 01/04/2019.

Tc = ITC owing to the construction of a business portion in the REP.

Tr = ITC inferable from construction of private portion in the REP where ToS (time of supply) is before 01/04/2019.

Te = ITC owing to the construction of commercial and residential bit where ToS (time of supply) is before 01/04/2019 and Te will be determined as Tc + Tr.

F1 = carpet region of private apartment /Total floor covering territory of the private and business 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 private apartment booked before 01/04/2019 where ToS (time of supply) is before 01/04/2019/Total estimation of supply for such reserved apartments.

F4 = 1 % completion of construction as on 31.03.2019.

Computation of ITC in case of a Residential Real Estate Project (RREP) or a project other than RREP having just private apartments:

Where % of finishing isn’t zero or where there is inventory in stock

ITC to be reversed Tx will be determined as:

Tx= T-Te

Where, Te=T*F1*F2*F3*F4

Where % of finishing is zero as on 31/03/2019 yet invoicing has been finished having ToS (time of supply) before 31/03/2019 and no sources of info or input services has been received as on 31/03/2019.

The enrolled individual will be qualified to take ITC on goods and services received on or after first April 2019 for development of private or business portion in the RREP, for which he will not generally be qualified, to the degree of the measure of Te.

Te will be determined as:

Te=Tn*F1*F2*F3

Where, Tn = Tax paid on such inputs and input benefits on which ITC is accessible under the CGST Act, got in 2019-20 for development of private and business apartments in the RREP.

Figuring of ITC in case a project other than RREP having both residential apartments as well as business apartments:

Where % of completion isn’t zero or where there is inventory in stock:

Tx = T – Te

Where, Te = Tc + Tr Tc = T* (carpet area of business apartments in task/complete carpet area of commercial and residential apartments); and Tr = T*F1*F2*F3*F4

In case the ITC inferable solely to the development of business portion (T1) and ITC inferable only to development of private portion (T2) are accessible, an enrolled individual can figure ‘Te’ as underneath:

Te = Tc + T1 + Tr

Where, Tc is the ITC owing to the development of business portion in the REP, determined as Tc =T3* (carpet zone of business apartments in the REP/all carpet area of commercial and residential apartments in the REP);

T3 = T-(T1 + T2)

T1 = ITC inferable only to the development of commercial portion in the REP.

T2 = ITC inferable solely to development of residential portion in the REP.

Tr is the ITC inferable from the development of residential portion in the REP which has time of supply at the very latest 31.03.2019 and which will be determined 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 yet invoicing has been finished having time of supply before 31st March 2019, and no input services or information have been received as on 31st March 2019, “Te” will be determined as below

The enrolled individual will be qualified to take ITC on goods and services got on or after first April 2019 for development of residential portion in the REP, for which he will not generally be qualified, to the degree of the measure of Te determined as underneath:

Te = Tc + Tr

Where, Tr = Tn* F1 * F2 * F3

Tn= Tax paid on such inputs and input services on which ITC is accessible received in 2019-20 for development of REP.

Tc =Tn* (carpet area of business apartments in the REP/all carpet region of business and private apartments in the REP)

While the computation of the ITC reversal seems, by all accounts, to be a mind boggling process in itself, the enlisted individual is required to pay the sum in either cash or using the accumulated ITC and fill the subtleties in FORM GST ITC-03.

Furnishing form ITC 03

ITC 03 form is filed by a taxpayer who needs to pay an amount equivalent to the ITC through electronic credit or money ledger. However, GST ITC 03 is commonly required to be filed in two cases, for example taxpayer has selected composition plan, or goods or services provided by the taxpayer become entirely excluded. Moreover, goods related information must be transferred in one of the two tabs in form, for example

  • Tab for outfitting details of goods with Invoices
  • Tab for outfitting details of goods without Invoices

So as to outfit form ITC 03, an assessee needs to figure GSTIN/Invoice wise absolute inversion amount and outfit receipt wise details in the utility, which can demonstrate to be a tedious activity for big traders who may have numerous invoices and mass information.

Besides, Form GST ITC – 03 has no sections for the ITC inversion. Considering most of Input services being manufacturers and real estate engineers, the absence of a proper section for Input Services in Form GST ITC – 03 has been playing a noteworthy obstruction for the builders.

Form GST DRC – 20

In case of a financial emergency, a builder can look for consent to either pay the ITC in instalments or a period expansion by filing an application in FORM GST DRC – 20 looking for authorization to pay the taxes in portions (if the alternative is there) or time augmentation for the payment of taxes if he is confronting financial emergency.

Alternative for paying off the liability via Form DRC-20 is unavailable in Form ITC-03.

  • Is ITC-03 the correct form for outfitting the ITC reversal?
  • By what method would it be a good idea for one to report Invoices reversal for Input Services?
  • If there should arise an occurrence of installment in portion, is the builder required to transfer Form ITC 03 for each incomplete payment?

As the due date to outfit the respective forms has been shutting in, a brief arrangement is anticipated from the GST council to sort the difficulties looked by the builders and Real Estate developers in India. In case that you happen to confront any comparable issues, do make reference to it in the remarks underneath and we will attempt to update you when any update is reported.

Enquire with Certicom Consulting for any further queries.

 

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Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

Certicom Consulting

Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.