The GST Council met for the 34th time on 20th March 2019.
Highlights of the same are discussed below:
1. GST Council in the 34th meeting held on 19th March, 2019 at New Delhi discussed the operational details for implementation of the recommendations made by the council in its 33rd meeting for lower effective GST rate of 1% in case of affordable houses and 5% on construction of houses other than affordable house. The council decided the modalities of the transition as follows.
Option in respect of ongoing projects:
2. The promoters shall be given a one -time option to continue to pay tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking have both started before 01.04.2019) which have not been completed by 31.03.2019.
3. The option shall be exercised once within a prescribed time frame and where the option is not exercised within the prescribed time limit, new rates shall apply.
New tax rates:
-The new tax rates which shall be applicable to new projects or ongoing projects which have exercised the above option to pay tax in the new regime are as follows.
(i) New rate of 1% without input tax credit (ITC) on construction of affordable houses shall be available for all houses which meet the definition of affordable houses as decided by GSTC (area 60 sqm in metros / 90 sqm in non- metros and value up to Rs 45 lakhs), and affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3 land abatement).
(ii) The new rate of 5% without input tax credit shall be applicable on the construction of,-
– All houses other than affordable houses in ongoing projects whether booked prior to or after April 1. In case of houses booked prior to April 1, new rate shall be available on instalments payable on or after April 1.
– All houses other than affordable houses in new projects.
– Commercial apartments such as shops, offices etc in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.
Conditions for the new tax rates:
-The new tax rates of 1% (on the construction of affordable) and 5% (on other than affordable houses) shall be available subject to the following conditions,-
-The input tax credit shall not be available,
-80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80%, a tax shall be paid by the builder 18% on RCM basis. However, Tax on cement purchased from the unregistered person shall be paid 28% under RCM, and on capital goods under RCM at applicable rates.
Transition for ongoing projects opting for the new tax rate:
-Ongoing projects (buildings where construction and booking both had started before April 1) and have not been completed by March 31 opting for new tax rates shall transition the ITC as per the prescribed method.
-The transition formula approved by the GST Council, for residential projects (refer to para 4(ii)) extrapolates ITC taken for percentage completion of construction as on Apil 1 to arrive at ITC for the entire project. Then based on percentage booking of flats and percentage invoicing, ITC eligibility is determined. Thus, the transition would thus be on pro-rata basis based on a simple formula such that credit in proportion to a booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.
-For a mixed project, transition shall also allow ITC on pro-rata basis in proportion to the carpet area of the commercial portion in the ongoing projects (on which tax will be payable 12% with ITC even after April 1 to the total carpet area of the project.
Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019
-The following treatment shall apply to TDR/ FSI and Long term lease for projects commencing after April 1.
-Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them. Exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after an issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses. This will achieve a fair degree of taxation parity between under construction and ready to move property.
– The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from land owner to builder underthe reverse charge mechanism (RCM).
-The date on which builder shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under RCM in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.
– The liability of the builder to pay tax on construction of houses given to the land owner in a JDA is also being shifted to the date of completion. Decisions from para 7.1 to 7.4 are expected to address the problem of cash flow in the sector
What Developers wants to say:
Manju Yagnik, Vice Chairperson, Nahar Group and Vice President NAREDCO (Maharashtra) said, “It is only fair that the Government has ensured flexibility of timelines while devising the new rates. It will give the developers a clear picture so that they may focus on aligning their finances by making use of ITC or working along the new guidelines without ITC. The decision to procure raw materials from registered dealers will keep the sector under check and also bring some relief to the developers whose projects are already under construction as they do not have to make any major alterations to their finances.”
“We are glad that the government has ruled out input tax credit as it will allow more transparent business transactions. The ruling will help circumvent the duplicate payment of GST by aiding utilization of Input Tax Credit in the structure itself, ultimately allowing consumers a huge benefit in lowering the overall property cost. This ruling will trigger spends towards the sector, affecting the industry positively and will boost sales. The council has approved a smooth transition of GST and has discussed options for housing units which will help in satisfying and handling customer for under construction projects”, said Rahul Shah, CEO, Sumer Group
According to Rakesh Reddy, Director, Aparna Constructions said, “The proposal to reduce the GST rate on under-construction properties will have positive implications for the sector. The lower GST reduces the pricing disparity between under-construction and completed properties. A reduction in price will dispel hesitation associated with under-construction properties. This will incentivize sales of under-construction properties and spur demand for new projects.”
The transition plan for the implementation of the new tax structure is appreciated as it will give adequate time to adapt operations to the new structure.
Rationalizing GST on under-construction properties has been one of the sector’s foremost requests. The move to reduce GST, combined with the implementation of RERA, will boost demand and firmly revitalize the sector, he added.
Source: Accommodation Times
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