Input Tax Credit for Real Estate Sector

Real estate is undoubtedly one of the most complex sectors, be it from the perspective of levy of tax, quantification of tax or the claim of input tax credit. This is perhaps because there are different facets involved, as a transaction of sale of constructed unit is not a simple transaction of sale of goods or services but is a complex transaction involving transfer of land / share in land, transfer of goods in the execution of contract and the provision of services of construction. From the perspective of indirect taxes, a contract for sale of unit, be it residential / commercial, is a works contract also involving the transfer of land / share in land.It is for this reason that under legacy laws, i.e., VAT and service tax, a lower tax rate was prescribed. For instance, in VAT, in Maharashtra, the sector had an option to pay tax at a standard rate of 1 per cent of agreement value while service tax was levied on 1/4th of the agreement value or 1/3rd of the agreement value. While the rate prescribed under VAT law was a composition scheme, meaning no corresponding input tax credit for the dealers, under service tax, the taxpayer was eligible to claim CENVAT credit, though only on input services, i.e., credit of tax paid on capital goods and inputs was not available. This restriction on claim of input tax credit was through a conditional notification, w