With no con­sen­sus, cut in GST rate on un­der-con­struc­tion flats de­layed

The Hindu Business Line - - TAKE 500 - SHISHIR SINHA

The wait for a de­ci­sion on lower Goods and Ser­vices Tax (GST) on un­der-con­struc­tions flats could be longer than ex­pected.

“Views on low­er­ing GST are very di­ver­gent. This means evolv­ing a con­sen­sus will not be easy,” a source privy to de­lib­er­a­tions dur­ing 32nd meet­ing of GST Coun­cil on Jan­uary 10 told Busi­nessLine.

The Coun­cil has al­ready re­ferred this mat­ter to a Group of States’ Fi­nance Min­is­ters (GoFMs), which is yet to be con­sti­tuted.

Realty & GST

A study re­vealed that home sales pan-In­dia jumped 18 per cent dur­ing the three­month pe­riod end­ing De­cem­ber 31, 2018. At present, real es­tate sec­tor has a three-lay­ered struc­ture for GST. First, there is no GST on sale of com­plex/build­ing and ready to move-in flats where sale takes place after is­sue of com­ple­tion cer­tifi­cate by the com­pe­tent au­thor­ity. Sec­ond, GST is ap­pli­ca­ble on sale of un­der con­struc­tion prop­erty or ready to move-in flats where com­ple­tion cer­tifi­cate has not been is­sued at the time of sale.

Card rate for such flats is 18 per cent, but ef­fec­tive rate is 12 per cent after abate­ment of 33 per cent (cost of land).

And, the third struc­ture is af­ford­able hous­ing where the ef­fec­tive rate is 8 per cent. Both these rates are with full in­put tax credit (ITC).

Two GST op­tions

The Joint Law and Fit­ment Com­mit­tee of the Coun­cil de­lib­er­ated on two op­tions for GST rate. First op­tion was the GST rate of 5 per cent with­out ITC for con­struc­tion of all houses in­clud­ing the af­ford­able hous­ing un­der var­i­ous schemes.

The sec­ond op­tion com­prised three struc­tures: (i) 3 per cent with­out ITC (ef­fec­tive rate after 1/3rd de­duc­tion to­wards value of land) for con­struc­tion of houses/flats in a res­i­den­tial com­plex where gross amount charged from a buyer for the house, in­clud­ing stamp duty, in metro cities with of pop­u­la­tion of 10 lakh or above is up to ₹45 lakh and at other cen­tres up to ₹3 lakh. (ii) 3 per cent with­out ITC for af­ford­able hous­ing projects, where the agree­ment of sale signed be­fore Fe­bru­ary 1, 2019. (iii) 5 per cent with­out ITC for all un­der con­struc­tion flats. All these rates are ef­fec­tive after 1/3rd de­duc­tion to­wards value of land.

Though the com­mit­tee felt that such a pro­posal will pro­vide bet­ter per­cep­tion of the rate of tax­a­tion and also ad­dress the con­cern of the buy­ers that builders are not pass­ing the ben­e­fit of ITC to the cus­tomers, still it ex­pressed some con­cerns. Firstly, it said that such a pro­posal will lead to price rise of the res­i­den­tial sec­tor, par­tic­u­larly in the lower cost seg­ment, in view of the fact that present tax pay­ment in cash is less than 5 per cent of the gross value, while in the high end seg­ment there may be a re­duc­tion in prices.

The com­mit­tee also said that the con­trol in in­put side by in­tro­duc­ing the clause of min­i­mum of 80 per cent pur­chase from reg­is­tered tax pay­ers in not as strong as main­tain­ing the in­tegrity of credit flow.

“To bring real es­tate into GST will re­quire a jour­ney in ex­actly the op­po­site di­rec­tion,” it men­tioned, while adding that com­pli­ance of com­pos­ite projects (res­i­den­tial plus com­mer­cial) would be­come dif­fi­cult.

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