Journey of Real estate (Past, present and Future) Speaker CA Sandesh Mundra

Transcription

1 Journey of Real estate (Past, present and Future)

2 Goods Service Land GST on goods & Service not on land Why land is the third category? Roots in history. Lets check..!!

3 States not in control of Britishers were under Suzerainty of British Crown. Some British enclaves controlled by Portugal

4 Instruments signed by Princely States States under Britishers - Instrument of Accession -three powers to Govt. Defence, external affairs, and communications States with intermediate status signed another Instrument to preserve degree of power they had under Britishers States with substantial administration of Britishers, had a different Instrument of Accession Only leasehold rights available in some cases Kandla Port trust/navi Mumbai/NOIDA and All Industrial Development Corporations

5 How to define land? Not defined under GST / Income Tax Land Not defined in Transfer of Property Act and in General Clauses Act Some Land Revenue Codes and Land Acquisition Act - Land includes benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth

6 Service tax Evolution of indirect taxes on real estate Levy introduced in 1994 Levy introduced on Construction services in 2004 Levy introduced on Works Contract in 2007 Levy confirmed on Developers in 2013 in Larsen and Turbo by confirming the ratio in Raheja Corporation

7 Supply under GST All forms of supply of goods or services or both made or agreed to be made for a consideration by a person in the course or furtherance of business Activities in Schedule III not be treated as supply - Entry (5). Sale of land Goods - 2(52) goods means every kind of movable property... Services - (102) services means anything other than goods. Previous regime Service means an activity for consideration excluding immovable property.

8 Rights in land Right to mortgag e Right to develop Right to license Easemen t rights Right to resell Tenanc y rights Right to lease

9 Deemed service under Schedule II of GST Act Right to mortgag e Right to develop Right to license Easeme nt rights Right to resell Tenancy rights Right to lease

10 Development Rights Transferable development rights Non-transferable development rights - European countries in India started in Bombay in 1990 for slum Looking to the Indian Govt., private individuals also started this concept

11 Developm ent Control Regulation s Stamp Duty Income tax Developme nt rights Pre GST GST RERA

12 Treatment of development rights in pre GST era Not taxed under VAT / Service Tax However Construction/works contract service in lieu of development rights Taxable under service tax Barter cannot be taxed as per Gannon Dunkerly 1958 (SC). Negative view in M/s Sumer Corporation..Bombay High Court

13 Develop ment Control Regulatio ns Stam p Duty Income tax Developm ent rights Pre GST GST RERA

14 Stamp duty for development rights in Maharashtra Stamp duty on DR same as that on conveyance

15 Valuation rules in Greater Mumbai for Stamp duty on development agreements Transaction In case of area sharing arrangements, Higher of :- In case of revenue sharing, Higher of :- Valuation Land owner area as per construction rate + money to land owner Developer s land x Rate of Land Current Value of the land owner s share in terms of the rate of sale having regard to the permissible user thereof x monetary compensation awarded to the land owner Valuation of the whole land at the rate of land

16 Developm ent Control Regulation s Stamp Duty Income tax Developme nt rights Pre GST GST RERA

17 Real Estate Regulation and Development Act 01 May, 2018 Deadline to establish an exclusive website 01 May, 2017 Deadline for Rules & Authority to be set by each state May 2008 Concept paper on regulation of real estate sector and a model law for legislation prepared 10 March, 2016 Real Estate (Regulation and Development) Bill, 2016 passed by Rajya Sabha 01 May, 2016 The Act is enacted 25 March, March, 2016 Bill passed in Lok Sabha Bill receives President s assent

18 Specific Issues relating to Joint Development Model under RERA Area Sharing Model Revenue Sharing Model

19 Specific Issues relating to Joint Development Model under RERA Land Owner or Developer liable for registration under RERA? More than one separate Bank Account? Common Collection towards land and construction? GST implications Compulsory Registration of JDA No escape from capital gains? Registration of each phase separately Merits and Demerits

20 Specific Issues relating to Joint Development Model under RERA Power of Attorney in lieu of Joint Development Agreement? Compulsory to be registered? Land Cost not in the books of Developer..filled in Form 3 by developer(ca Certificate)? Cost of Land Historical Cost or FMV or Indexed Cost?

21 Developme nt Control Regulation s Stamp Duty Income tax Developme nt rights Pre GST GST RERA

22 Development rights in income tax Section 2(47) - "transfer", in relation to a capital asset, includes, (v) any transaction referred to in S. 53A of the TPA (DR covered) or.form (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property..substance Transfer includes transfer of development rights and its transfer attracts capital gain in Income tax

23 Development rights in income tax 45(5A) Capital gain arises to an assessee being an individual or a HUF from transfer of capital asset, being land or building or both, under a specified agreement, (DR is land) capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his share, being land or building or both in the project, as increased by the consideration received in cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

24 Development rights in income tax Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the project on or before the date of issue of the said certificate of completion and capital gains shall be deemed to be income of the previous year in which such transfer takes place and the provisions of this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full value of consideration received or accruing as a result of such transfer.

25 Correlation between income tax and GST Section 45(5A) of income tax says that through the specified agreement, land or building stands transferred. Can we refer the same in GST as sale of land? In income tax and GST, deferment of point of taxation only to pure area sharing arrangements where cash inflow does not happen initially. Area sharing whether part or whole is allowed for deferring tax liability. If landowner further transferred his part of units before allotment then, no deferment

26 Developme nt Control Regulations Stamp Duty Income tax Developme nt rights Pre GST GST RERA

27 Department s view

28 Notification 4/2018

29 All development rights (Taxability on text) Whether transfer of development rights/transfer of TDR are:- 1. Sale of land??? 2. Supply of services..???? Let us discuss..!!!

30 Two edged sword Notification 4/2018 CGST (Rate) dated Lets look at a practical case :-

31 Tax impact on affordable housing as a new business Option

32 Benefits under GST in two ways Lower rate Exemption

33 Lower rates under Notification 11/2017-CGST (Rate) dated For RAY For JNNMRU For PMAY For State Govt. Scheme For infrastructure status For Any other scheme

34 Infrastructure Status The following entry was inserted vide Notification 1/2018-Central Tax (Rate) dated Sr No 1. Original + Repair + Maintenance Particulars 12% Rate low-cost houses of 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 30th March,2017; (Effective tax rate after land deduction of 1/3rd of total is 8%) (as per notification of Economic Affairs)

35 Definitions as per Notification Affordable Housing is defined as a housing project using at least 50% of the Floor Area Ratio (FAR)/Floor Space Index (FSI) for dwelling units with carpet area of not more than 60 square meters. (FAR = Total covered area / plot area) Carpet Area shall have the same meaning as assigned to it in clause (k) of section 2 of the Real Estate (Regulation and Development) Act, Calculation of FSI limit Common area treatment No tender required for this scheme

36 In-Situ Redevelopment of existing slums Date Notificatio n No. Particulars Rate OLD /2017- Central Tax (Rate) Original + Repairs + Maintenance (c) a civil structure or any other original works pertaining to the In-situ rehabilitation of existing slum dwellers using land as a resource through private participation under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers; 12% NEW /2018- Central Tax (Rate) Original + Repairs + Maintenance (c) 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). 12% (Effective tax rate after land deduction of 1/3rd of total considerati on is 8%)

37 Press Release stated: The Council has also recommended that the benefit of concessional rate of GST of 12% (effective GST rate of 8% after deducting value of land) applicable to houses supplied to existing slum dwellers under the in-situ redevelopment of existing slums using land as a resource component of PMAY may be extended to houses purchased by persons other than existing slum dwellers also. This would make the in-situ redevelopment of existing slums using land as a resource component of PMAY more attractive to builders as well as buyers.

38 Credit linked subsidy scheme The following entry was inserted vide Notification 1/2018-Central Tax (Rate) dated Sr No Particulars Rate 1 Original + Maintenance + Repairs a civil structure or any other original works for CLSS for EWS/ LIG/MlG-1/MlG-2 under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban); 12% (Effective tax rate after land deduction of 1/3rd of total consideration is 8%)

39 Passing on of Credits under Section 171 Press Release stated: The housing projects in the affordable segment in the country would now attract GST of 8% (after deducting value of land). The builder or developer will not be required to pay GST on the construction service of flats etc. in cash but would have enough ITC (input tax credits) in his books to pay the output GST, in which case, he should not recover any GST payable on the flats from the buyers. He can recover GST from the buyers of flats only if he recalibrates the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-gst price of flats. The builders/developers are expected to follow the principles laid down under section 171 of the GST Act scrupulously.

40 Lets look at some other issues

41 Key controversies in GST and interplay with other statues like RERA, Stamp duty etc. Meaning of First occupation Deduction of land read with conditions in RERA Delhi AAR Treatment of liquidated damages Negative AAR Credit of works contract service for developer Larsen and tubro Developer is a works contractor Interchangeable words used in Notification 11/2017

42 Key controversies in GST and interplay with other statues like RERA, Stamp duty etc. Reversal of credit What?? When???? How????? For land & After BU sales Example GST on maintenance deposit/preferential Location/Parking / Cancellation / Nomination charges collected with total consideration Hyderabad FAQ Maintenance deposit cannot be taxed and rest all (other than Nomination charges treated as Composite supply with real estate)

43 Key controversies in GST and interplay with other statues like RERA, Stamp duty etc. Credit of inputs held in WIP by builders Negative Circular Credit of WIP by works contractors Notices issued by Dept. Overflow of credit not allowed to builders Credit of taxes paid on DR (if..)

44 Key controversies in GST and interplay with other statues like RERA, Stamp duty etc. Treatment of long term lease Bombay HC Judgment (Negative) & Greater Noida (Delhi CESTAT Positive) Cancellation of service post GST (and of transition period) if period to issue credit note is expired Inter-state movement of capital goods with payment of tax

45 Other controversies Claiming refund Change in definition of Net ITC Reimbursement of Electricity Charges from tenants on the basis of sub meter Reimbursement of electricity charges on sub-meter Not taxable M/s S.B Developers Ltd vs CST, New Delhi Free Issue of Material Bhayana Builders Supreme Court Composite supply Vs Mixed supply Vs works contract Back to intention regime negative advance rulings.

46 Other controversies Whether splitting allowed post GST? High seas sales No sunset clause in Article 366(29A) Credit of motor vehicle in construction industry

47 Any space for planning amid all these difficult issues?

48 Options available and financial implications How about an option contract?? How about a mortgage contract?

49 Thank you!! Any doubts??..contact us at