QUESTION

In case of REP project, in which carpet area of commercial proportion is approximately 20% of total carpet area of project units, 1. What is the best way to calculate eligible ITC of commercial proportion on composite purchase such as cement, steel, sand &labour which used for entire real estate project in common, where it is not practically possible to bifurcate commercial & residential purchase, so as to avoid litigation in future with Tax Department, as we need to pay tax at full rate i.e 12% (after reduction of land portion i.e 1/3 of total value of unit)?

ANSWER

Facts of the case: In case of REP project, in which carpet area of commercial proportion is approximately 20% of total carpet area of project units, how to calculate eligible ITC of commercial proportion on composite purchase such as cement, steel, sand &labour which is used for entire real estate project in common, where it is not practically possible to bifurcate commercial & residential purchase.

Reply: The total purchase will be divided into the three parts
A = Items directly used in a residential area like fan, light, lift bathroom fittings, etc
B = Items directly used in the commercial area as above
C = Items used as a common input like sand cement etc
Now C is to be divided on the basis of carpet area
Suppose T is total carpet area TC is carpet area of commercial TR is carpet area of residential then

ITC allocated to the commercial portion from common inputs is D to be calculated as follows:
D= (C*TC)/T

Now the total eligible credit available for the commercial area will be B+D. (Reply dt. 22/03/2021)