GST Council approves transition rules on new tax rates for realty
new delhi — In a big relief to builders, the GST Council on Tuesday approved transition rules on new tax rates for residential property and offered an option to builders with under-construction buildings to shift to the new rates without input tax credit (ITC) or continue with the old rates with it.
Experts said this was a key demand for the realty industry as a lot of buildings had purchased inputs like raw material and suddenly going out of ITC would have made those projects unviable and would have created a further inventory. Builders also would have been forced to raise prices to make up for losses.
The GST rates for new real estate projects will be mandatory from April 1, 2019.
Currently, the goods and services tax (GST) is levied at 12 per cent with ITC on payments made for under-construction property or ready-to-move-in flats where the completion certificate is not issued at the time of sale. For affordable housing units, the existing tax rate is 8 per cent.
In the previous meeting on February 24, the Council slashed tax rates for under-construction flats to 5 per cent and affordable homes to 1 per cent, effective April 1.
“Today’s meeting was to approve the transition rules. The builders of the incomplete residential projects as on March 31, 2019, will have the option to either choose the old rate of 12 per cent or 8 per cent or the new rates of 5 per cent or 1 per cent without input tax credit.
“But the new buildings... those that will start after after April 1, the new rates of (5 or 1 per cent without ITC) will apply,” Revenue Secretary Ajay Bhushan Pandey told media persons here.
The option will have to be exercised within a time limit for transition to the new rates and will be subsequently decided in consultations with the states, he said.
Those builders with under-construction buildings who will opt for the new rates of 5 per cent and 1 per cent will have to reverse the ITC as per a given formula, proportionate to the area space.
“The choice of tax rates in case of buildings that are not completed, as on April 1, has to be exercised within a specified time, which will be notified later. For new projects beginning 1 April, lower tax rates will apply,” Pandey said.
As much as 80 per cent of the procurement of the material should be from GST registered dealers and up to 15 per cent of the commercial space is to be treated as residential property for GST calculations. The transition plan, Pandey, said, is revenue neutral even after giving an option to the incomplete buildings.
Niranjan Hiranandani, national president, Naredco, said the GST Council addresses the transition issues on input tax credit for the ongoing projects with making it flexible for the developers to choose between the old GST v/s New GST schemes.
“This will allow the developers to opt between two GST schemes available i.e old GST rate with ITC or apply a reduced rate of GST without ITC for the under-construction projects in order to avoid operational hassles.”
M.S. Mani, partner, Deloitte India, said the move to segregate under-construction projects from new projects would provide relief to builders who were worried about the loss of input tax credit.
“This would also enable them to price the loss of input tax credits in the new projects. Reversal of ITC on a proportionate basis would entail significant computational issues for builders as each project would be in various stages of construction and have differing pre- and post-completion sale patterns. Protecting existing input tax credits and mandating the new rates only in respect of new projects would benefit both builders and consumers.”
Abhishek Jain, Tax Partner, EY said: “The approval of the scheme as an optional one for construction projects underway was one of the key asks of the real estate industry. It’s go ahead by the GST Council brings quite a relief for this sector in handling transition issues in specific.”