07.04.2023: Many services linked to flat construction to attract lower 12% GST

A recent Appellate Authority for Advance Rulings (AAAR) order in the case of a Thane-based developer will gladden the hearts of buyers of under-construction properties, as it could translate into reduced costs.

The appellate bench held that charges for several services collected by the developer, Puranik Builders, such as for water connection, electric meter installation and deposit for meter, development charges and legal fees are “inextricably linked” to the primary service of construction. These charges will be part of a “composite” or bundled supply and will be subject to GST at the rate applicable to construction services- which is a lower rate of 12%. The Authority of Advance Ruling, in its August 2021 ruling,  had held that charges for all other services provided by the builder were independent and thus subject to GST at 18%. This led to the developer filing an appeal with the AAAR.

From April 1, 2019, the revised GST rate for construction services has been 5% without input tax credit for housing projects that do not fall in the affordable housing segment. For ongoing projects, though, builders can opt for the 12% rate with input tax credit. Typically, a builder also provides “other services” against which charges are collected. These range from services such as providing a water connection to collection of advance maintenance charges prior to formation of the housing society by the buyers. These other services are listed in the agreement for sale, which a builder enters into with flat-buyers.

The AAAR bench dissected the nature of payments made towards other services. Only those services that are not part of the bundled supply such as advance maintenance, club house maintenance, share application money will be taxable at 18% the appellant bench held. 

Source: The Times of India 

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