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Benefits from lower GST rate must be passed on to home buyers: NAA

Benefits from lower GST rate must be passed on to home buyers: NAA

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In a ruling that will have far reaching consequences for real estate developers, the National Anti-Profiteering Agency (NAA) has held that excuses like the challenges and uncertainties associated with the GST regime cannot be used deny home buyers from benefits of a lower tax rate. Very simply, if a developer has benefitted from the introduction of GST in terms of lower rate of tax, the benefits need to be passed on to the consumer.

The history of the case can be traced to a period when GST had not come into force and a buyer had purchased a flat in the ‘East Crest, Bengaluru’ project launched by Salarpuria Real Estate Pvt. Ltd. The matter came before the National Anti-Profiteering Agency (NAA) was basis the report furnished by the Director General of Anti-Profiteering (DGAP) who was also the Co-Applicant in the matter.

The DGAP in its report highlighted the following key aspects:

  • The developer had accepted the fact that he has profiteered post GST, however, due to non-availability of the calculations, the benefit could not be passed on;
  • The ITC pertaining to the unsold units was outside the scope of the investigation and hence, the respondent is required to recalibrate the selling price as such;
  • The argument that the ITC details were not available is not acceptable because the entire amount was available to the respondent;
  • Profiteering, if any, has to be established at a given point of time in terms of Rule 129(6) of the CGST Rules, 2017;
  • The report had determined a profiteering of 1.45% on the transaction value;
  • The benefit accrued was calculated on the 51 units sold out of a total of 263 units, however, it was supposed to be passed onto the remaining 50 buyers, not being a party of the ruling.

Salarpuria Real Estate, however, argued that the project did not fall under affordable housing project and hence, is a residential project, the normal rate of GST applicable on the same was 12%. The developer added that it was not able to ascertain the exact impact of GST and hence, had suo moto sent out communication stating the same in this regard. Moreover, it passed on a benefit to the extent of Rs. 25 per sq. ft.to the buyers already, with a communication that the balance of the benefit would be passed on, once the exact numbers are ascertained.

According to the developer, the prudent exercise, in this case, would be to declare the ITC benefit once the project was complete and that the cost of construction of the flat is irrelevant to determine profiteering since the project, once wholly put, is valued basis its surroundings, landscaping, standards, facilities etc.

The developer also argued that a major chunk of the work is undertaken by sub-contractors; hence the complete details of ITC were not available with it.

The NAA after considering the legal provisions and facts of the case, held that the contention of the developer that computation of the benefit/ loss could not be done before completion of the project is not tenable. In its ruling the NAA held that the respondent has regularly availed the benefit of additional ITC and hence he cannot be allowed to enrich himself at the cost of the buyers and keep them waiting till the project was completed.

“This is the second Ruling in quick succession, earlier being in the case of Puri Construction, wherein authorities have not given any heed to submissions by Respondents on their inability to pass on credit and have held that GST has endowed benefits in terms of ITC accumulation, which needs to be passed on to buyers in all cases,” said Harpreet Singh, Partner in KPMG.

NAA also said that the contention of the developer that he had involved sub-contractors who had not passed on the benefit of ITC is also completely against the anti-profiteering provisions as every registered person is required to pass on the benefit of additional ITC. “The Respondent can always claim the benefit from his suppliers if he thinks that it is due to him by following the legal options but cannot offer this as an excuse,” said the NAA.

“Citing reasons for an inability to do the profit computation, is clearly unacceptable to the authorities. Simply put, if the profit has accrued, it needs to be passed on to the consumer. Period,” adds Singh.

Accordingly, the NAA agreed with the findings of the DGAP directed Salarpuria Real Estate to pass on the benefit to the Applicant and other buyers to the extent reported in the findings. As regards imposition of penalty is concerned, since the developer had not released the benefit for a long period and tried to avoid its release on various grounds, the NAA said this makes the firm liable for penalty.

Source: Economic-Times.

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New GST regime may hurt builders, says expert

New GST regime may hurt builders, says expert

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Real estate developers have to pay more taxes under Goods and Services Tax (GST) for residential projects, if they source a bulk of their inputs (like cement and capital goods) from unregistered dealers.

For residential projects started after April 1, 2019, the builder has to mandatorily charge customers a concessional rate of 5% or 1% (affordable residential apartments), as per the decision of the GST Council.

For ongoing projects, they were given an option to choose between the old rate of 12% or 8% for affordable housing and the new rates by May 20.

Under the old rate, builders were allowed to claim credit on input costs incurred on steel, cement and sand for under-construction buildings to offset their GST liabilities. The new rate comes without the input tax benefit.

According to advocate G. Natarajan, senior partner, Swamy Associates, there are more pain points for builders under the new concessional GST rates announced for the real estate sector.

Cost to go up

Though it was believed that the reduction in GST rates would reduce the price of apartments, it is not so, as the costs for the builder would go up due to denial of input tax credit, he added.

“Whatever the GST liability is, it has to be paid only in cash and you are not eligible to take input tax credit,” Mr. Natarajan said, addressing developers at a session on GST for the construction industry.

The event was organised by CREDAI Chennai in association with The Domotics.

Under the new tax rates, Mr. Natarajan pointed out that if a developer procures cement from an unregistered dealer, he will have to pay GST on cement at the rate of 28% under the reverse charge mechanism and no input tax credit will be available.

Generally, a supplier of goods or services pays the tax on supply. But in case of reverse charge, the receiver is liable to pay the tax. Similarly, he said that if the developer procured capital goods from an unregistered dealer, he would have to pay the tax at whatever rate was applicable for that category of capital goods.

Registered dealers

Mr. Natarajan also said the developer had to make sure that 80% of all inputs and services were purchased from registered dealers. If not, the developer would have to pay tax on the shortfall value at the rate of 18%.

For example, if the value of input is ₹10 crore, the builder has to purchase ₹8 crore from registered users. If he purchases only ₹6 crore from registered users, for the remaining value of ₹2 crore, he has to pay GST of 18%.

At the event, J.M. Kennedy, Commissioner of GST, Trichy, released the book on demystifying GST for construction industry authored by Natarajan.

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Source: The-Hindu
GST Council to discuss bringing real estate under its ambit
Builders opting for old GST rate face problems with buyers insisting on paying only 5% tax

Builders opting for old GST rate face problems with buyers insisting on paying only 5% tax

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Builders are facing a piquant situation with homebuyers insisting that they will pay only the new rate of 5 per cent GST on flats even though the developer has opted for the old rate of 12 per cent to take advantage of credit on inputs like paints, cement and steel.

As part of rationalisation of the Goods and Services Tax (GST) on real estate sector, the GST Council has allowed builders to migrate to 5 per cent rate for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) from April 1, 2019.

For the ongoing projects, builders have been given the option to either continue in 12 per cent GST slab (8 per cent for affordable housing), with ITC, or opt for 5 per cent GST rate (1 per cent for affordable housing) without ITC.

Although most of the builders have opted for 12 per cent rate for ongoing projects to avail the benefit of credit of taxes paid on inputs, the customers are insisting that they would only pay the lower GST rate of 5 per cent.

“In the transition phase, there is resistance from buyers to pay GST as per the old rate. We are convincing them and explaining to them about the transition framework approved by the GST Council,” said Satish Magar, the newly-elected president of realtors’ apex body Credai.

Getamber Anand, the past chairman of Credai, also said buyers are insisting on paying the new reduced GST rate and builders are exploring options on how to deal with this issue as they have to claim ITC.

Lakshmi Kumaran & Sridharan Attorneys Partner Kapil Sharma said, “The biggest challenge faced by developers all across India is to take a pricing decision with respect to on-going projects… The perception in the mind of buyer is that effective rate of tax has reduced from 12 per cent to 5 per cent and property has become cheaper.”

AMRG & Associates Partner Rajat Mohan said most builders have opted for 12 per cent rate as it allows them to adjust the accumulated ITC in their books of accounts, which would otherwise lapse.

“Developers rolling over from the current scheme of taxes from 12 per cent to 5 per cent for the ongoing projects would lead to real estate companies in red due to non-availability of massive chunk of tax credits,” Mohan said.

Another problem being faced by the developers is with regard to revision of prices of already booked flats, which is not allowed as per RERA guidelines. Hence, the developers cannot raise the price of such flats to adjust non-availability of ITC benefit in case they opt for 5 per cent GST option.

“In such a case, for the inventory already booked, the developer would continue to charge agreed price of the property which shall be borne by developer. Therefore, the pricing which was decided when input tax was available would be continued even when credit is barred by department. In such a case, there is no-flexibility for revision of pricing by developer for the already booked inventory,” Sharma said.

Mohan added, “The changes in taxation for the real estate sector has added another dimension in the buyers psychology, compelling the developers to lower the taxes from 12 per cent to 5 per cent, even if a developer decides to continue with 12 per cent tax regime eyeing the benefit of input tax credit.”

According to EY Tax Partner Abhishek Jain: “While technical aspects from a GST perspective have been addressed well by the Government through the multiple FAQs released, commercial aspects like continuing with the earlier higher rate of tax, pricing impact, etc would need to be looked into by the real estate sector.”

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Source: Money-Control.

Most builders opt for 12% GST slab for ongoing projects

Most builders opt for 12% GST slab for ongoing projects

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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.
GST House
GST: Homebuyers To Pay 12% GST On Balance Due If Completion Certificate Issued By March 31

GST: Homebuyers To Pay 12% GST On Balance Due If Completion Certificate Issued By March 31

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Homebuyers will have to pay 12 percent Goods and Services Tax on balance amount due to the builder if the housing project has been granted completion certificate by March 31, 2019, the Central Board of Indirect Taxes and Customs has said.

Builders who have received a completion certificate for an ongoing project before April 1, 2019, will have to charge 12 percent GST from buyers on the balance amount due towards the purchase of the flat.

Issuing the second set of FAQs for real estate sector, the CBIC said that builders will not be able to adjust the accumulated credits in ongoing projects in case they opt for lower new GST rate of 5 percent for normal and 1 percent for affordable housing.

The first set of FAQs for real estate sector was issued last week to clarify doubts with regard to migration of real estate developers to new GST rates for the sector which has come into force from April 1, 2019.

The GST Council, headed by Finance Minister Arun Jaitley and comprising state counterparts, had in March allowed real estate players to shift to 5 percent GST rate for residential units and 1 percent for affordable housing without the benefit of the input tax credit from April 1, 2019.

For the ongoing projects, builders have been given the option to either continue in 12 per cent Goods and Services Tax slab with ITC (8 percent for affordable housing), or opt for 5 percent GST rate (1 percent for affordable housing) without ITC and communicate to their respective jurisdictional officers the same by May 20.

To a query on what shall be the rate of GST applicable on projects in respect of which occupation certificate has been issued prior to April 1 but the balance demands are pending, the FAQ said: “Time of supply of the service by way of construction of apartments in such projects falls prior to April 1, 2019, and accordingly the rates as existed prior to April 1, 2019, would apply to such balance demands.”

AMRG & Associates Partner Rajat Mohan said, “This clarification has tightened the grip on taxpayers who intended to take benefit of lower taxes rates with the aid of deferred invoicing.”

On whether accumulated ITC can be adjusted against new tax liability of 5 percent and 1 percent, the FAQ said: “No. GST on services of construction of an apartment by a promoter at the rate of 1 percent/ 5 percent is to be discharged in cash only. ITC, if any, may be used for discharging any other supply of service.”

“Developers opting for new tax regime for ongoing projects now has another reason to refrain from new scheme,” Mohan said.

The CBIC further clarified that exempted goods procured by a builder under the new tax regime would not be counted within the 80 percent limit set for procurement from registered dealers.

“This could entail an additional tax of 18 percent on value of exempt supplies, credit of which would not be available to developers,” Mohan added.

While deciding on lower GST rates for real estate sector, the Council had said that at least 80 percent of the inputs should be procured from registered dealer.

The CBIC has also clarified that developer and not the land owner will have the right to decide whether to opt for new GST rates or stick to old rates for ongoing projects.

EY Tax Partner Abhishek Jain said: “Clarifications on some technical ambiguities like non-applicability of new rates for projects completed before April, 2019, valuation of TDR, etc should help resolve some involved issues for this sector.”

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Source: Bloomberg Quint.
GST builder
Builders to refund GST if flats booking cancelled in FY19: CBIC

Builders to refund GST if flats booking cancelled in FY19: CBIC

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Issuing clarification in the form of FAQs on GST rate changes for real estate sector, the Central Board of Indirect Taxes and Customs (CBIC) said that builders will have to refund GST paid by homebuyers if he/she cancels the flat booked in the last fiscal and will be allowed to avail credit adjustment for such refunds. Also, builders, not buyers, will have the power to choose between the optional GST rates decided for the real estate sector by May 10.

The FAQs come after the GST Council reduced GST rate to 5 per cent for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) effective April 1, 2019 for projects which commence on or after April 1. For ongoing projects, the real estate promoters have the option to choose between a 12 per cent rate with the option of input tax credit (ITC) or 5 per cent without it, and in the case of affordable housing projects, an 8 per cent rate with tax credit or a 1 per cent rate.

If realtor opts for new rate, 80 per cent of inputs and input services have to be purchased from registered vendors and value of purchases less than 80 per cent will invite a reverse charge of 18 per cent, except in case of cement, where applicable rate is 28 per cent. A “Residential Real Estate Project” has been defined as the one where carpet area of the commercial apartments is not more than 15 per cent of total carpet area of all apartments in the project.

If a real estate developer has collected 12 per cent GST from homebuyers beginning April 1, 2019, but later opted for 5 per cent rate, the builder will have to refund the extra tax (7 per cent) collected to the buyer. The FAQs, however, did not clearly spell out whether 7 per cent tax refunded by the builder will be adjusted against his GST liability. The FAQs said developer will be able to issue a ‘Credit Note’ to the buyer as per provisions of Section 34 in case of change in price or cancellation of booking. “Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note,” the FAQ said.

Explaining through an example, it said a developer who paid GST of Rs 1.20 lakh at the rate of 12 per cent in respect of a gross amount of booking of Rs 10 lakh before April 1, 2019, shall be entitled to take adjustment of tax of Rs 1.20 lakh upon cancellation of said booking on or after April 1, 2019, against other liability of GST. The FAQs also said once a real estate developer opts for either old GST taxation regime or new one for ongoing projects manually with jurisdictional Commissioner, he will not be permitted to modify it.

With regard to purchase of land from owner by developer commonly termed as Transfer of Development Right (TDR), the FAQ said GST would not apply on agreements entered into on or after April 1, 2019. However, for TDR agreements entered into prior to April 1, 2019, the developer will not be able to claim credit for GST already paid. TDRs were taxed at 18 per cent in the GST regime. All towers registered as different projects under RERA will be treated as distinct projects, for which the builder will have to maintain separate books of accounts, it said. PwC India partner and leader (Indirect Tax) Pratik Jain said “developers need to carefully evaluate as to which scheme is more efficient and clearly communicate to the customers accordingly”.

Jain said there might be situations, where one project is registered under RERA but different part of project (e.g towers) are at different stages of completion (e.g completion certificate has been received for one of the towers and others are still under construction). “As per the FAQ, in such case, tax rate still needs to be determined for project as a whole. It still needs to be clarified whether GST would still be applicable on flats sold in first tower(as same is outside GST as per GST Act itself). Logically, there should not be any GST with respect to towers where flats are sold after completion,” he said.

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Source: Indian-Express
GST builder
Builder can’t charge higher GST for location, parking

Builder can’t charge higher GST for location, parking

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There may be further GST (goods and services tax) relief for home buyers with the Authority on Advance Ruling (AAR) in West Bengal concluding that services such as preferential location and facilities like car parking in apartments should be treated as “composite construction service” and attract the same levy as construction.

After the ruling, builders will now have to charge 5% GST on services bundled with affordable homes and 8% on others. Several builders, including some of the top players, were charging 18% GST on these services, while the government had lowered the rate for under construction apartments. The government allows one-third abatement or rebate on the value of land, that results in the actual levy coming to 8% for non-affordable category residential units when the GST rate is 12%.

“Taxability of ancillary charges recovered by builders like preferential location charges (PLC), parking charges, transfer fees, external development charges, internal development charges (IDC), document charges etc has been a matter of dispute even under the erstwhile service tax regime. With this ruling, it is likely that diverse practices adopted by builders on taxability of PLC and parking charges end, and such services henceforth are made liable to tax at the lower rate as applicable to construction services.” said Harpreet Singh, partner at consulting firm KPMG.

“The real estate sector was in a conundrum on the taxability of preferential charges, right to use car parking, etc; the essential reason being as to whether some of these qualified as under construction service on which the lower GST rate of 12% or 5% would be available or they would be taxed at 18%.


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Source: Times of india.
GST real estates
Realtors have time till May 10 to opt for old GST rates

Realtors have time till May 10 to opt for old GST rates

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Real estate firms have time till May 10 to communicate to their respective jurisdictional officers whether they want to continue with the old GST rates with the input tax credit, failing which they will be deemed to have migrated to new tax rates. The GST Council had given the option to real estate companies to either opt for old rates of 12 per cent (for residential) and 8 per cent (affordable housing) with input tax credit (ITC) benefits or the new tax rates of 5 per cent for residential units and 1 per cent for affordable housing without the benefit of adjusting the credit on inputs used during construction.

The Central Board of Indirect Taxes and Customs (CBIC) has issued a notification giving real estate companies a one-time option to choose either of the tax rates.

“Provided that in case of an ongoing project, the registered person shall exercise one time option … to pay central tax on construction of apartments in a project at the rates as specified …. by the 10th of May, 2019,” the CBIC said.

In case, realtors do not exercise the option, they will be covered under the lower tax rate of 5 percent and 1 percent with effect from April 1, 2019, and will not be entitled to avail tax credit on inputs.

Meanwhile, in a separate notification, the CBIC has asked the real estate companies that will be migrating to the new rates to prepare their books of accounts with regard to ITC and repay the over-used credit, if any, to the government in 24 installments.

Explaining the provision, AMRG & Associates Partner Rajat Mohan said builders opting for a lower rate of taxes with effect from April 1 would have to recalculate eligible tax credit since the inception of GST based on the proportion of residential to commercial carpet area, sold to unsold units and invoiced to a un-invoiced amount.

“Based on the factual data if tax credit has been availed beyond permissible proportion, then such excess needs to paid back to tax authorities. In quite a few cases, such tax payment would be magnanimous, especially where the project is nearing completion, but unsold units lying in inventory are high. This will have a high tax risk on real estate sector and many may experience the worst cash flow position since the inception of GST,” Mohan said.

Further, the CBIC has also asked builders to maintain project wise account of inward supplies from a registered and unregistered supplier.

“GST mandated a state-wise registration. However, now taxpayers in the real estate sector are liable to produce project-wise break-up of procurements and outward supplies in order to re-calculate admissible tax credits. This will burden a taxpayer with multiple tax records to be updated on a regular basis, moving away from ‘Ease of doing business‘,” Mohan said.


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Source: Times of India
GST Real estate
No clear definition of ‘ongoing project’ may lead to disputes under new GST rates for real estate

No clear definition of ‘ongoing project’ may lead to disputes under new GST rates for real estate

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The GST Council at its 34th meeting on 19 March 2019 laid down the roadmap for implementation of the recommendations made in the previous meeting, towards rate rationalization for real estate. These recommendations attempt to address the apprehensions of the sector on multiple issues including loss of unutilized input credit, exemptions and rate applicability.

Ongoing projects

A one-time option has been proposed for on-going projects not completed by 31 March 2019, to continue to pay tax at the existing GST rates (effective rate of 8 percent for affordable housing and 12 percent for others). Ongoing projects have been referred to as buildings where both construction and actual booking started before 1 April 2019 and which have not been completed by 31 March 2019. The option has to be exercised once within a prescribed time frame. It is quite interesting that this option has been allowed at a project level instead of at the individual residential unit level. Complexity arises in interpreting the term ‘ongoing project’, particularly in cases where the construction is undertaken in a phase-wise manner consisting of a cluster of buildings in a large township project. An absence of clear definition of ‘ongoing project’ would leave room for interpretation and may invite unwarranted disputes.

As far as the choice of option is concerned, from the viewpoint of home buyers, the existing higher GST rate may not be acceptable. From the developers’ standpoint, continuing with the existing rate structure may seem to be beneficial where input credits for the project would have been factored into the pricing of units, and also where benefits under anti-profiteering have already been passed on to customers. The process of selection of alternative would not only entail the determination of benefit which the home buyer would bargain to continue with the existing rate.

New Projects

New projects for which the construction would start after 1 April 2019 shall attract the revised lower GST rate (1 percent for affordable residential units and 5 percent for other residential units). As far as mixed-use projects are concerned, the GST Council has clarified that residential projects having commercial space such as shops, offices etc., up to 15 percent of total carpet area, shall also be eligible for lower GST rate of 5 percent.

These rates are coupled with conditions that input tax credit shall not be available and 80 percent of procurements, except procurements of capital goods, Transferable Development Rights (TDR) / development rights under Joint Development Arrangement, long term lease (premiums), are made from GST-registered persons. This would require developers’ to revisit budgeting and costing of their new projects to factor the potential tax cost towards non-creditable taxes. Also this requirement requires clarity in the enabling notification in terms of timing and manner of compliance.

Further, the compliance with the condition of 80 percent procurement from registered persons in case of ongoing projects opting to pay tax as per new rates, requires clarity as to whether it should be computed from 01 April 2019 onwards or even for the past period. This would also require re-visiting the existing procurements and selection of vendors given the fact that value chain in the sector comprises of unorganised suppliers. This would also entail applying internal controls as well as checks and balances by developers to avoid potential violation of this condition.

Considering the peculiar nature of the sector, to avert any possible complexity and controversy around the determination of eligible credit, it has been proposed that the Credit Rules shall be amended to provide requisite procedure and guidelines for mixed-use projects (residential and commercial use).

Affordable housing

At present affordable housing has the benefit of concessional rate of GST at 8 percent for projects covered under the notified central or state housing schemes as well as projects which have ‘infrastructure status’ as per the notification issued by the Department of Economic Affairs.

The GST Council has recommended that the GST rate for affordable housing would be rationalised at 1 percent, subject to the ceiling on area for metros and non-metros as well as value cap of INR 45 lakhs, for ongoing projects under the existing central or state housing schemes. Presently these projects are eligible for concessional rate of GST. They are proposed to be eligible for a rate of 1 percent without any condition of area ceiling or value cap. So it is likely that projects presently eligible for concessional rate of 8 percent will not be so eligible going forward. Further, benefit of lower GST rate of 1 percent should have also been extended to projects having infrastructure status, so as to maintain parity for all affordable housing projects which presently enjoyed the concessional rate.

Transition of unutilized input credit

Lack of clear guidelines and apprehension of possible controversy around transition of an unutilized input tax credit as on 31 March 2019, has been a key issue for the sector. While there was apprehension that the entire credit balance could stand reversed, this fear has been allayed by the Council that has allowed developers to transition the credit as per the method to be prescribed. In essence, transition mechanics would consider credit taken for the percentage completion of construction as on 01 April 2019, to arrive at the credit for the entire project.

Such credit could then be further determined on the basis of percentage booking of flats and percentage invoicing. This transition would be on a pro-rata basis based on a simple formula such that credit in proportion to the booking of the flat and invoicing done for the booked flat is available. For mixed-use projects, transition shall also allow credit in proportion to the carpet area of commercial portion to the total carpet area of the project

TDR, FSI and long term lease for new projects

Supply of TDR, FSI and long term lease (premium) of land by a landowner to a developer has been proposed to be exempted subject to the condition that constructed flats are sold before issuance of completion certificate and tax has been paid on them. Such exemption would be withdrawn in cases where the flats are sold after issuance of completion certificates and such withdrawal is limited to 1 percent of the value, in case of affordable houses, and 5 percent in case of others.

While it is intended that this proposal would achieve parity of taxation between under construction and ready-to-move residential properties, it appears that ready-to-move properties could suffer tax burden of 1 percent or 5 percent as the case may be. It is unclear how the developer would recover this tax liability from a buyer of a ready flat, as the GST is not applicable to immovable property. As the person supplying TDR or FSI would not be in a position to envisage and comply with this condition, the liability to pay tax has been shifted to the developer.

Conclusion

The GST Council has attempted to carefully balance the apprehensions of developers for implementing the new rate structure, along with the interests of home buyers. Considering that the proposals are to be made effective from 1 April 2019, the sector has a limited window period to implement and work towards documentation, ERP systems, and processes as well as engaging with customers. Hopefully, the enabling notifications also carry the intent of the recommendations and not leave any scope for interpretation.

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Source: Economic Times
GST real estates
GST council approves transition plan for new tax rates for real estate sector

GST council approves transition plan for new tax rates for real estate sector

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The all-powerful GST Council on Tuesday approved a transition plan for the implementation of new tax structure for housing units, revenue secretary A B Pandey said.

The reasonable time for transition will be given to developers in consultation with states, he told reporters here.

The meeting deliberated on the transition provision and related issues for the implementation of lower GST rates for the real estate sector.

The council had in its last meeting on February 24, slashed tax rates for under-construction flats in an affordable category to 1 percent. GST rate on other categories was reduced to 5 percent, effective April 1.

Pandey said GST rates for new projects will be mandatory from April 1.

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Source:Times of India