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    APPLICABLE RATE OF TAX ON CLSS UNITS 1

    Background: 

    Under “Pradhan Mantri Awas Yojana – Housing for All” mission for urban areas isbeing implemented with effect from 17.06.2015 to provide centralassistance to implementing agencies through States and UT’s for providing houses to all eligible families / beneficiaries. As a central sector scheme, the existing Credit Linked Subsidy Scheme (CLSS) component of the mission provides interest subsidy on home loans taken by eligible urban poor i.e. Economically Weaker Sections(EWS) /Lower Income Group(LIG) for acquisition

    • construction of house.Coming to taxability under Good and Service tax, for the services being provided to the persons who are eligible for the benefit of CLSS and other weaker section housing schemes are taxed at a lower rate through press release no. 132 dated 22.01.2018.

    This article shall help to understand the following ¬-

    ?Therateof tax applicable for construction services provided to the buyers who are eligible for subsidy under CLS scheme

    ?Therateof tax applicable for services provided to Central/State government for houses constructed or acquired under other weaker section housing schemes introduced by Central and State Governments

    To know the applicable rate of tax, first we need to determine whether the services being provided to the buyers eligible under CLS schemes and other weaker section housing schemes being provided is a construction service as detailed in entry 5(b) of Schedule II of the Central Goods and service Tax Act, 2017 or a works contract service as per entry 6(a) of schedule II of the Central Goods and Service Tax Act, 2017.

    Accordingly, Schedule II read with section 7 of Central Goods and Services Tax Act, 2017 lists out certain transactions as supplies to levy GST. The following activities are relevant in the present context.

    Entry 5(b) of Schedule II:

    The following shall be treated as supply of services, namely: -

    • 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

    Entry 6(a) of Schedule II:

    The following composite supplies shall be treated as supply of services, namely: -

    (a) Works contract as defined in clause (119) of section 2; 

    Works contract as defined under section 2(119):

    “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfers of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

    1. On perusal of the above two entries, entry 5(b) provides that any construction of residential complex undertaken by builder for sale to customers by taking advances from them before completion of construction shall be considered as supply of construction service. On the other hand, entry 6(a) provides that any service undertaken by a person by way of construction under a contract along with material supply will be treated as works contract service.

     

    1. Both the entries discussed above deals with construction services. However, the key difference is that in case of first activity under entry 5(b), in addition to construction, also involves transfer to customers, the undivided share of ownership in land on which the residential complex is constructed. While the second activity under entry 6(a) being works contract, service does not involve transfer of ownership in land as the construction is undertaken on land belonging to the contractee.

     

    1. Notification 11/2017-CGST (Rate) dated 28.06.2017 and Notification 8/2017-IGST (Rate) dated28.06.2017 are issued to prescribe the GST rates for various services. These are parallel and identical notifications issued to prescribe CGST rates and IGST rates respectively. Reference to any one of them will be sufficient to decide the applicable rate of GST for any given service.

     

    1. Rate of tax for construction service: The entries in Notification 11/2017-CGST(Rate) that are relevant in the present context are entry 3(i), provides that the rate of GST is 18% in case of services by way of 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. This entry also provides that for the purpose of calculating GST, a1/3rd standard deduction shall be made from the price of the flats, towards the value of undivided share in land, thereby the effective rate of GST for construction services undertaken by builders is12%.

     

    1. Rate of tax for works contract service: Similarly, entry no 3(ii) of above specified notification prescribes the rate of GST at 18% for the composite supply of works contract as defined in clause 119 of section 2 of Central Goods and Services Tax Act, 2017 which is considered as supply of works contract service as per entry 6(a) of Schedule II of the CGST Act, 2017.

     

    • The other relevant entries are related to weaker section housing schemes of Central and State Government. These schemes are as under;
    • Scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana
    • Pradhan Mantri Awas Yojana ln-situ redevelopment of existing slums using land as are source, under the Housing for All (Urban) Mission (Urban);
    • Beneficiary led individual house construction / enhancement under the Housing for All(Urban) Mission/Pradhan Mantri Awas Yojana
    • Economically Weaker Section (EWS) houses constructed under the Affordable Housing inpartnership by State or Union territory or local authority or urban development authority under the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban)
    • Low-cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the 'Scheme of Affordable Housing in Partnership' framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;
    • Low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under-
    • The “Affordable Housing  in  Partnership”  component  of  the  Housing  for All(Urban)Mission/Pradhan Mantri Awas Yojana;
    • Any housing scheme of a State Government;

    III.Low-cost houses up to a 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

     

    1. Houses constructed or acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS)/ Lower Income Group (LIG)/ Middle Income Group-1 (MlG-1)/Middle Income Group-2 (MlG-2)” under the Housing for All (Urban) Mission/ PradhanMantri Awas Yojana (Urban).

     

    1. Rate of tax for services provided for weaker section housing schemes(6th point):On perusal of these entries relating to weaker section housing schemes, the rate of GST that is applicable is 12% as per entry 3 (iv) and (V) of Notification No 1/2018-CT(Rate). Normally, the weaker section housing projects are undertaken by Government by identifying lands and inviting tenders from contractors for construction. In such case, the services involved will be of works contract services as defined in section 2(119) and provided under entry6(a) of schedule II.

     

    1. Secondly, on perusal of the list of weaker section housing schemes specified above, all of them are notified and promoted projects of either Central Government or State Government. The houses constructed by contractors will be sanctioned to the beneficiaries of the scheme as decided by the Government. The GST rate of 12% is prescribed with respect to services of the nature described in section 2(119) i.e. works contract services.

     

    1. The next important aspect to be considered is in case of houses constructed or acquired under credit linked subsidy scheme, government extends subsidy benefit to lower income group, middle income group-I and II beneficiaries. The eligible carpet area prescribed for these middle-income group beneficiaries is 120 square meters (1291 square feet) for lower income group and 150square meters (1614 square feet) for middle income group – I and II. Apart from the restriction in the carpet area, the central government has laid down the restriction as to who can be called as lower income group1 and middle-income group2.

     

     

    SBS Interns' Digest

    www.sbsandco.com/interns-digest

    S No

    Annual Income of Household

    Category

    1

    Upto Rs 3,00,000/-

    Economically Weaker Section (EWS)

    2

    Rs 3,00,000/- to Rs 6,00,000/-

    Lower Income Group (LIG)

    3

    Rs 6,00,001/- to Rs 12,00,000/-

    Middle Income Group – I (MIG-I)

    4

    Rs 12,00,001/- to Rs 18,00,000/-

    Middle Income Group – II (MIG-II)

     

    1. With respect to houses/flats acquired by these economically weaker Sections, lower/middle-income groups under the said scheme, it has been clarified by GST Council vide the press release no. 132 dated 22.01.2018, that the rate of GST applicable is 12% treating the services as works contract services falling under section 2(119) and covered by entry 3(iv)(db) of Notification 01/2018-CGST(Rate). Further, it is clarified that in such cases where there is any transfer of ownership in land along with the provision of construction services, 1/3rd deduction is also applicable towards the cost of undivided share of land in such houses/flats, thus making the effective rate of GST as 8%.So far the benefit of concessional rate of GST of 12% was only applicable on houses constructed under the other three components of the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana (Urban), namely-

     

    • ln-situ redevelopment of existing slums using land as a resource component;
    • Affordable Housing in partnership and
    • Beneficiary led individual house construction / enhancement.

     

    With the press release no. 132 dated 22.01.2018, the benefit now has been extended to-

    • Houses acquired under CLSS component.
    • Houses supplied to existing slum dwellers under the in-situ redevelopment of existing slums.
    • Houses constructed for “Economically Weaker Section (EWS)” under the Affordable Housing in partnership supporting construction of houses up to 30 sqm carpet area.
    • services by way of construction of low cost houses up to a carpet area of 60 sqm in a housing project which has been given infrastructure status.

     

    1. There-fore the rate of tax applicable for CLSS units involving works contract service is 12% in case if there is any transfer in the owner ship of land then rate of tax applicable will be 8%. In this regard, the persons who are entitled under this scheme are required submit the documentary requirements under the scheme evidencing that they are covered under the said scheme and eligible for concessional GST rate.

     

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