Real estate development sector was criticised over the non-percolation of input tax credit benefit to end consumers as well as the prevalence of low cash output. The GST council took cognizance and devised a Composition scheme for residential and mixeduse projects in 2019. Though the legal process for implementing the scheme was complex, the math behind the introduction of this scheme was to augment taxes by restricting input tax credit and collecting output taxes in cash. All aspects of taxation (classification, valuation, input tax credit, reverse charge provisions, tax payment methodology, etc.) were meticulously taken up and a series of notifications were introduced. There was a concoction of multiple provisions integrated into a single notification. Among the various tax aspects introduced into the said scheme, was the novel 80-20 rule which restricted the source of procurements by real estate developers from persons not registered under GST. The said rule mandates the minimum ratio of procurements to be maintained by developers from registered (RPs) and unregistered (URPs) persons. In cases where the procurement from RPs falls short of the 80 per cent ratio (or URPs exceeds 20 per cent), a shortfall value is ascertained and tax is payable on such amounts under reverse charge basis by the Developer (can be termed as excess URP tax). Naturally, this rule was aimed to encourage procurements from RPs so that the net tax collections from resid
