RCM Under GST for Real Estate Promoters: TDR, FSI and Long-Term Lease

RCM under GST for real estate promoters applies when a promoter receives development rights, FSI, additional FSI or long-term lease of land for construction of a project. From 1 April 2019, the promoter pays GST under reverse charge in notified cases, subject to exemptions for residential apartments booked before completion certificate or first occupation.

Legal Provision for TDR, FSI and Long-Term Lease Under RCM

Entry 5B and Entry 5C of Notification No. 13/2017-Central Tax (Rate), dated 28 June 2017, cover real estate-related services under RCM.

These entries were inserted for real estate projects with effect from 1 April 2019.

Entry	Nature of supply	Supplier	Recipient
Entry 5B	Transfer of Development Rights or FSI, including additional FSI, for construction of a project	Any person	Promoter
Entry 5C	Long-term lease of land for 30 years or more against upfront amount and/or periodic rent for construction of a project	Any person	Promoter

The words “any person” cover individuals, companies, societies, authorities, Government bodies, registered suppliers, and unregistered suppliers. The recipient must be a promoter. The term “promoter” is understood with reference to section 2(zk) of the Real Estate (Regulation and Development) Act, 2016.

What is TDR Under GST?

TDRmeans Transfer of Development Rights. In a joint development agreement, the landowner grants development rights to the builder. In return, the landowner receives constructed flats, commercial units, money, or a combination of both. For GST purposes, TDR is treated as a supply of service.

Where TDR is transferred for construction of a project on or after 1 April 2019, the promoter pays GST under RCM as per the notification.

What is FSI Under GST?

FSI means Floor Space Index. It represents the development potential attached to land. Additional FSI means extra construction rights acquired from a development authority, local authority, Government body, landowner, or another eligible person.

FSI and additional FSI received by a promoter for construction of a project fall under RCM.

What Is Long-Term Lease Under GST?

Long-term lease means lease of land for 30 years or more.

The consideration includes upfront amount, premium, salami, cost, price, development charges, or similar payment. Periodic rent also forms part of the lease arrangement, but its tax treatment must be checked separately based on the agreement and notification entry.

Where a promoter receives long-term lease of land for construction of a project, GST applies under RCM as per Entry 5C.

When Does RCM Apply to Real Estate Promoters?

RCM applies when all these conditions are satisfied:

• The recipient is a promoter.
• The promoter receives TDR, FSI, additional FSI, or long-term lease of land.
• The right or lease is received for construction of a project.
• The transaction falls on or after 1 April 2019.
• The transaction is not fully exempt under the residential apartment exemption.

This rule applies even if the supplier is an unregistered landowner.

GST Rate on TDR, FSI and Long-Term Lease

The GST rate on TDR, FSI, additional FSI, and long-term lease is 18%.

However, the actual GST liability depends on whether the project has residential apartments, commercial apartments, or both.

Project component	GST treatment
Residential apartments booked before completion certificate or first occupation	Exempt to that extent
Residential apartments unbooked on completion certificate or first occupation	Taxable proportionately, subject to cap
Commercial apartments	Taxable at 18%
Mixed project	Split between residential and commercial portion

GST on Unsold Residential Apartments

GST is payable on the portion of TDR, FSI, additional FSI, or upfront lease amount attributable to unsold residential apartments on the date of completion certificate or first occupation.

The tax is calculated at 18%, but it is capped as follows:

Type of apartment	Maximum GST payable
Affordable residential apartment	1% of value of unsold apartment
Other residential apartment	5% of value of unsold apartment

This cap applies only to unsold residential apartments. It does not apply to commercial apartments.

GST on Commercial Apartments

Commercial apartments do not get the residential exemption.

TDR, FSI, additional FSI, or long-term lease attributable to commercial units is taxable at 18% under RCM.

Commercial units include shops, offices, showrooms, business spaces, commercial floors, and other non-residential units.

In a mixed project, the promoter must divide the value between residential and commercial portions. Carpet area is the practical basis used for such allocation.

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Time of Payment Under RCM

The time of payment differs based on the project type and nature of right. For TDR, FSI, additional FSI, and upfront long-term lease amount linked to residential apartments, GST on the taxable portion is paid at the time of completion certificate or first occupation, whichever is earlier.

For the portion linked to commercial apartments, GST is payable without waiting for completion certificate where the notification and time of supply rules require immediate payment. The correct timing depends on the nature of right, consideration, project category, and agreement terms. Promoters should maintain written working papers for the tax period selected.

Self-Invoice and Payment Voucher

Where the supplier is unregistered and the promoter pays GST under RCM, the promoter must issue a self-invoice under section 31(3)(f) of the CGST Act.

The promoter must also issue a payment voucher under section 31(3)(g) at the time of payment.

The self-invoice should mention:

• promoter’s name and GSTIN
• supplier’s name and address
• project name
• description of TDR, FSI, additional FSI, or long-term lease
• agreement date
• taxable value
• GST rate
• GST amount
• reverse charge remark

These records are important during GST audit and project-wise scrutiny.

ITC on GST Paid Under RCM

Input tax credit on GST paid under RCM depends on the output tax structure of the project.

For residential projects taxed at 1% or 5% without ITC, credit of GST paid under RCM is not available against those residential outward supplies.

For commercial units taxed at 18%, ITC eligibility is examined under section 16 and section 17 of the CGST Act. In mixed projects, the promoter must maintain separate project-wise and component-wise workings. Credit attribution must match the residential and commercial use of the rights.

80% Procurement Rule Is Separate

Real estate promoters under the new residential rate scheme also have to meet the 80% registered procurement condition.

This rule is separate from RCM on TDR, FSI, and long-term lease. TDR, FSI, long-term lease against upfront payment, electricity, high speed diesel, motor spirit, and natural gas are excluded while calculating the 80% procurement threshold. If purchases from registered suppliers fall short of the prescribed limit, the promoter pays GST under RCM on the shortfall as per the real estate notification.

Conclusion

RCM under GST for real estate promoters applies to TDR, FSI, additional FSI, and long-term lease of land received for construction of a project. Residential apartments booked before completion certificate or first occupation receive exemption to that extent. Unsold residential apartments attract proportionate GST with a 1% or 5% cap. Commercial apartments attract GST at 18%.

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