18% GST ON BUILDERS AND DEVELOPERS – WHAT IS THE CHANGE

Hope you are not Surprised by the Rate 18% instead of 12% earlier applicable on the Builders. If you are surprised, please note that there is effectively no change. The rate earlier prescribed was 12% on the Total Value including Land Value. But the now the rate 18% has been Made applicable on Works Contract Value*.

*Works Contract Value = Total Value of Contract (-) Land Value

* Land Value = 1/3rd of Total Contract Value

Hence the Effective Rate shall still be 12% of Total Contract Value only. In our view, the same is done to ensure that there no litigations on the matter as taxing 12% on Total would have meant taxing Land Component also which is beyond GST Competence.

Here is the Extract of Notification  No. 11/2017-Central Tax (Rate) dated 28th June, 2017

(i) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. (Provisions of paragraph 2 of this notification shall apply for valuation of this service)

(ii) composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017

(iii) construction services other than (i) and (ii) above

In case of supply of service involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply.

Explanation .– For the purposes of above, “total amount” means the sum total of,-

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share of land, as the case may be.