Analysis of 33rd GST Council meeting proposals on Real Estate Sector

The GST Council in its 33^rd meeting has in principle given approval to the below proposals in respect of residential sector of the real estate sector from 1^st April, 2019. Details of the scheme shall be worked out by an officers committee and shall be approved by the GST council in a meeting to be called specifically for this purpose.

First Proposal

• GST shall be levied at ‘effective GST rate’ of 1% without ITC on ‘affordable segments’*.
• GST shall be levied at effective GST rate of 5% without ITC on other than affordable segments.

*Affordable segments here imply a residential house/flat of carpet area of upto 90 square meters in non-metropolitan cities and 60 square meters in metropolitan cities;

Value of the house/flat should be less than Rs. 45 lacs in both the cases to avail these rates.

Points to emphasis:

1. What would be the rate of GST to be charged on account of house/flats given to landlord in lieu of the development rights?

2. Whether there would be requirement to reverse Input Tax Credit (ITC) already availed, the house or flats of which invoicing is due on or after 1^st April, 2019?

The answer at the present moment seems to be ‘Yes’. In this regard, it is relevant to take note of point no. 4 given in notification no. 11/2017- CT (Rate) dated 28.06.2018 which provides by way of explanation to be applied where rates has been prescribed subject to the condition of no Input Tax Credit (ITC) has been taken. Explanation (iv), states that:

Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that,-

(a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and

(b) credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder.

It is further to be noted that interest liability shall apply as the case may be on such ITC reversals.

3. Whether accumulated ITC would lapse?

The answer at the present moment seems to be ‘No’. In this regard, it is relevant to note that Section 18(4) of GST Act which provides for lapsing of input tax credit shall not come into play since in the present case, taxable person has not opted to pay tax under Section 10 of GST Act or supplies has not become wholly exempt.

4. Whether the rate would also apply in case of partly residential and partly commercial property? If yes, how?

5. There would be applicability of anti-profiteering provisions as contained in Section 171 of GST Act, since there is reduction in rate of tax and therefore, the benefit of reduced rate needs to be passed to customers.

6. The rates mentioned are ‘effective tax rates’which implies the same are after considering any reduction in value (for whatever reasons) on which it is going to be applied.

Second Proposal

Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable as above.

Points to emphasis:

1. The residential property in respect of which GST is not payable as above (say a property sold post completion certificate) shall not be eligible for aforesaid exemption.

2. Again how the valuation of already litigated development rights shall be done. This is further going to aggravated in case of partly residential and partly commercial property since exemption applied only for development rights associated W.R.T. residential property.

Parting note: The proposals are being taken on the premise that residential housing would be affordable but doesn’t seem to be so as far as my understanding is concerned.