GST Council Approves Transition Plan For New Tax Rates For Housing Sector

GST Council Approves Transition Plan For New Tax Rates
GST Council Approves Transition Plan For New Tax Rates For Housing Sector

The GST Council in its 34th meeting on Tuesday approved a transition plan after deliberating on the rules and related issues for the implementation of the lower tax rates for under-construction housing units. In a big relief to realty sector, the GST Council approves transition plan and offers an option to builders of the incomplete residential projects as on March 31, 2019 to either opt for the new rates without Income tax credit (ITC) or continue with the old rates with ITC.

Now, under the transition provision, builders have the option to apply for either the new GST rates of 01 per cent for affordable and 05 percent on other category of under-construction houses without ITC or old rates of 08 percent and 12 percent (effective) with ITC on the ongoing projects before April 1, 2019. This will allow the developers to either opt old GST rate with ITC or new lower rate of GST without ITC for the under-construction projects in order to avoid operational hassles.

Also read: GST Council Cuts Rate To 5% On Under-construction Residential Properties

Ajay Bhushan Pandey, the revenue secretary says “Providing such option would be beneficial for those developers who had already factored in the entire input credits of the project while arriving at the sale price and in many cases, these benefits may already have been passed on to customers.”

He told that the new rates would be applicable in case of projects beginning from April 01,2019.”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”, he added. 

Thus, the builders would be given a one-time option to continue to pay tax at the old rates on ongoing residential projects, which are completed by March 31, 2019. The option will be exercised once within a prescribed time-frame and thereafter, the new tax rates would apply.

He briefed the media after the council meeting and said that the government expects the builders to pass on the benefit of lower tax rates as the rates were revised only based on their representation.

He also says if the builders do not pass on the benefit, buyers can still go to the National Anti-profiteering Authority, which pursues cases of non-passage of GST benefits to customers.

Those builders with under-construction buildings who will opt for the new rates will have to reverse the ITC as per a given formula, proportionate to the area space.

Earlier, the GST Council in its last meeting on 24th February had reduced the tax rates to 01 per cent for affordable under-construction houses and 05 per cent on other housing category, effecting from 01st April. Currently, the 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. The existing GST rate for on going affordable housing projects is 08 per cent.

In fact, this was a key demand of the industry as a lot of buildings had purchased inputs like raw material and the sudden loss of ITC would have made those projects unviable. Builders also would have been forced to raise prices to make up for losses.

By making the new tax rates optional for under construction residential projects, the Council has effectively addressed various transitional issues such as the loss of input credits, pricing etc that were bound to arise on account of the change. Besides, the builders were worried about the loss of input tax credit.

Therefore, the Council brings a big relief to the real estate sector by addressing these issues on input tax credit for the ongoing residential projects by segregating under-construction housing projects from the new launch of projects. Now, it is optional for the developers to choose between the old GST rate structure or New GST schemes.

GST Council Approves Transition Plan For New Tax Rates For Housing Sector

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