Most real estate developers across the State have opted for the old Goods and Services Tax (GST) rate of 12% for ongoing residential projects, as they feel the rate is more beneficial owing to the availability of input tax credit, allowing them to pass on the benefits to the consumers.

Earlier this year, the GST Council had taken a decision that for all new projects launched after April 1, 2019, builders would charge 5% GST from buyers, but they cannot avail themselves of the input tax credit. For affordable housing projects, the rate was cut to 1% from 8% earlier.

Builders claim credit on input costs incurred on steel, cement and sand, used for under-construction buildings, to offset their GST liabilities.

Pass-through possible

Further, in terms of ongoing projects, the Council allowed developers to choose between the old rate of 12% and new rates by May 20.

If the builder fails to exercise the option, it will be deemed as though the builder has chosen to charge GST at the concessional rates of tax.

S Sridharan, chairman of Confederation of Real Estate Developer’s Association of India (CREDAI) Tamil Nadu and Director of Newry Properties Pvt Ltd, pointed out that a majority of builders have decided to opt for the old system, because of the availability of input tax credit. “We have opted for the old rate of 12% as we have the benefit of passing the input tax credit to the customers through the price,” Arun MN, MD of Casagrand said.

W.S. Habib, Managing Director of RWD Private Limited and Sandeep Mehta, Managing Director of Jain Housing and Constructions Limited too said they are opting for the old rates. Mr. Habib said his firm will pass on the discounts to the customers.

Another top builder in the city, who wished anonymity, said, “You never know what the election results would be. So majority of the builders have decided to stick to the old rates,” he added.

Sanjay Chugh, City Head and Senior Vice President of ANAROCK Property Consultants, pointed out that many builders would have already factored in the entire input credits for the ongoing projects and changing to a new rate would not be beneficial.

“With the benefits of input tax credit, the effective rate of tax under the old regime generally works out to about 5-7%,” he said.

“Although, on paper, the concessional rates of tax appear to be more beneficial to all buyers of new apartments, since the builder is not eligible to avail the credit of tax paid by them on their procurements, the builders would be left with no option but to recover the loss of credit by increasing the value of the flat,” Raghavan Ramabadran, Partner and Sahana Rajkumar, Senior Associate, Lakshmi Kumaran and Sridharan Attorneys said.

However, Varun Manian, Managing Director of Radiance Realty Developers Ltd, said for ongoing projects his firm is opting for the 5% rate, as the cost of buying is too high for customer at 12% rate.

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Source: The-Hindu.