Real estates to pay GST on shortfall in input procurement before 30 June

The real estate companies are allowed to opt for lower Goods and Services Tax (GST) rates of 1% and 5% from 01 April 2019. However, to opt for the scheme, they have to procure 80% of the total supplies from registered dealers. Otherwise, they have to pay tax on the shortfall in such procurement and payment of tax on shortfall amount should be paid by 30 June 2020.

Previously, the GST Council had allowed real estate players to shift to 5% and 1% GST rate for residential units and affordable housing respectively. This option comes without the benefit of Input Tax Credit (ITC) from 01 April 2019. However, they have to procure mandatorily at least 80% of the inputs from the GST registered dealers.

The shortfall in the procurement would be subject to 18% GST, which is to be paid by real estate developers on supplies used as inputs or input services and 28% for cement.

The promoter/developer have to pay the tax on the value of input and input services comprising such shortfall (less than the threshold limit of 80%) and this tax should be paid through a prescribed form electronically on the common portal by the end of the quarter following the financial year. Accordingly, for the fiscal year 2019-20, tax on such shortfall is to be paid by 30 June 2020.

Also Read: Summary of CBIC notifications dated 24th June 2020 on GST extensions

The revenue department had received requests seeking details of prescribed form on which the said tax amount has to be reported. The issue referred by the trade has been examined, and it has been decided that Form GST DRC-03, shall be used for making the payment of such tax by promoter/developer.

Accordingly, the person required to pay tax following the said notification on the shortfall from threshold requirement of procuring inputs and input services (below the threshold of 80%) from the registered person shall use the form DRC-03 to pay the tax electronically on the common portal within the prescribed period.

The real estate developers falling under the lower tax bracket of 1% and 5% are filled with massive tax demands for which payments need to be made in cash by 30 June 2020 without the utilisation of input tax credit.

The real estate sector was expecting an extension of due date for tax payment as the project receipts have already dried up due to COVID-19 pandemic situation.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in