Kerala AAR: Construction Services of Affordable Apartments Attract 1.5% GST with a 1/3rd Deduction

The Kerala Authority for Advance Ruling (AAR) has issued a ruling stating that the construction of affordable residential apartments is subject to a 1.5% GST rate, while non-affordable residential apartments are subject to a 7.5% GST rate. For construction services, the Goods and Services Taxes (GST) will be calculated by deducting one-third of the value of the land and the actual value of the land as mentioned in the agreement.

The applicant, M/s. Palal Realty is a partnership enterprise operating as a builder and developer in Kerala.

The applicant argued that both landlords and purchasers of villas since they are in the construction business, should pay a 1.5% GST rate for the construction of affordable villas and a 7.5% GST rate for other types of villa development. They suggested that subject to meeting certain requirements, the effective GST rate should be 1% for affordable villas and 5% for other than affordable villas after deducting one-third of the total consideration for the land.

It was also revealed that the amount charged by the applicant to villa buyers for structural alterations made before the completion of construction, such as adding additional space or carrying out interior work, was included in the total amount charged for the construction and sale of the villa.

A two-judge bench composed of Dr S.L. Sreeparvathy and Abraham Renn ruled that the applicant must pay GST at a rate of 1.5% for services related to the construction of affordable residential apartments, and at a rate of 7.5% for services related to the construction of non-affordable residential apartments, subject to the specified conditions for villa projects.

Related: Kerala AAR Levies 1.5% GST on Inexpensive Residential Apartments

Additionally, the applicant is entitled to deduct one-third of the total price charged for the supply when determining the taxable value of the construction services provided.

Any amount charged by the applicant to villa purchasers for structural changes made before the completion of construction, such as adding extra space or carrying out interior work, will be subject to GST at a rate of 1% for affordable villas and 5% for non-affordable villas.