GST 80% Rule in Real Estate Sector – Summary Guide

 

1. Overview of the 80% Rule

·        Promoters must procure at least 80% of taxable inputs and services from registered suppliers annually, project-wise.

·        If shortfall exists, RCM (Reverse Charge Mechanism) applies on the shortfall.

·        Cement from unregistered suppliers is always liable under RCM (earlier 28%, now 18% under GST 2.0).

2. Calculation Basis

·        The rule is applied annually, project-wise, not monthly.

·        Shortfall is determined at year-end, and RCM is payable by June of the following year.

3. Treatment of Non-GST/Exempt Items

·        Non-GST supplies (e.g., electricity, petrol, diesel, alcohol) and exempt supplies (e.g., health, education, agricultural produce) are excluded from the 80% calculation.

·        Salary and wages are excluded as they are not considered supplies under GST.

4. Special Cement Rule

·        Any cement purchased from unregistered suppliers is always taxed under RCM.

·        To avoid RCM liability on cement, builders must procure 100% cement from registered suppliers.

5. Adjustment of Shortfall

·        If overall registered procurement is less than 80%, the shortfall is first adjusted against cement if unregistered cement exceeds 20%.

·        If not, the shortfall is adjusted against other taxable inputs/services.

6. Composition Dealers

·        Purchases from composition dealers count as registered for the 80% rule.

·        However, no Input Tax Credit (ITC) is available on such purchases.

·        These purchases help meet the threshold but should be flagged separately.

7. Key Takeaways

·        Annual, project-wise compliance is required.

·        No item-wise 80% test is needed, except for the cement carve-out.

·        Cement from unregistered suppliers always attracts RCM.

·        Composition dealers count as registered but ITC is not available.

8. Applicability to Commercial Real Estate

- The 80% rule applies only to residential real estate projects under concessional GST rates (1%/5%).

- Commercial projects (offices, malls, shops, warehouses) are not covered under the 80% rule.

- Commercial projects continue under normal GST rates with ITC available.

9. GST Rates for Commercial Real Estate

- 12% GST: Sale of under-construction commercial property (shops, offices, warehouses) with ITC available.

- 18% GST: Renting/leasing of commercial property (shops, offices, warehouses) with ITC available.

- 0% GST: Sale of completed/ready-to-move commercial property (only stamp duty/registration applies).

- Sale of land: Exempt from GST.