03.11.2022: Services of construction of affordable residential apartments would attract 1.5% GST: Kerala AAR

The Kerala Authority of Advance Ruling (AAR) in the case of Crescent Builders vide Advance Ruling No. KER/142 /2021 dated 12.07.2022, has held that affordable residential apartments attract 1.5% GST.

The bench of Sreeparvathi and Abraham Renn has held that a new tax structure for the real estate sector was introduced with effect from 01.04.2019 onwards by the amendment of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 by Notification No. 03/2019 – Central Tax (Rate) dated 29.03.2019. The construction services are being rendered by the applicant after 01.04.2019 and hence the rate as notified under the new tax structure is applicable in respect of the construction services rendered by the applicant.

The notification dated 29.03.2019 allows the concessional rate of tax for affordable residential units even when the project contains commercial units that do not exceed 15% of the total units. Similarly, even the residential units in a real estate project that is not a residential real estate project are also given the concessional rate of GST.

The applicant is a partnership firm engaged in the development and construction of residential apartments. The applicant is planning to execute a Joint Development Agreement for the development of a plot of land into a Multi-Storied Residential Apartment Project (Residential Real Estate Project).

The proposed residential project consists of 50 units, out of which 14 apartments are to be given to the landowner towards the landowner's area under the Joint Development Project. All the 50 units in the apartment complex have a carpet area of less than 60 square metres and the total sale consideration, \including all charges, in respect of 30 residential apartments will be above 45 lakhs, and in respect of 20 residential apartments, the total sale consideration will be below 45 lakhs.

The 20 residential units in the project would qualify as “Affordable Residential Apartments” as defined in Notification No. 11/2017 as amended by Notification No. 03/2019.

The applicant sought the advance ruling on the issue of whether benefit under Notification No. 03/2019 Central Tax (Rate) can be availed in respect of the units which qualify as “Affordable Residential Apartments” in a Residential Real Estate Project “when the project consists of both “Affordable Residential Apartments” and other apartments.

The AAR held that the services of construction of apartments provided by the applicant in the residential real estate project squarely fall within the description of services specified in Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019.

The authority stated that the applicant is liable to pay GST at the rate of 1.5% in respect of the services of construction of affordable residential apartments and at the rate of 7.5% in respect of the services of construction of residential apartments other than affordable residential apartments in the project.

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