After the inconclusive meeting through a Video Conferencing, the Arun Jaitely led GST Council concluded with few take-away for the end consumer.

Let us analyse the decisions:

GST rate:

  1. GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment;
  2. GST shall be levied at effective GST of 1% without ITC on affordable housing properties.

Effective date: These rates shall come into force from 1st April 2019.

Now let us analyse the impact of these two changes:

Affordable housing segment is a defined word. It is based on the area of the house/flat.

If the area of the house is less than 90 square meters(968 sq ft approx.) in non-metropolitan cities and 60 square meters(646 sq ft approx.) in Metropolitan cities, then such  houses shall fall under the category of affordable segment provided the value of the property is less than Rs. 45 lakhs. Here the value would mean the transaction value, in other words the assessable value on which GST is levied. Attention is sought for the definition of transaction value as described in section 15 read along with the valuation rules where transaction value shall also include any taxes,  duties, cesses, fees and charges levied under any statue other than the GST Act/IGST Act, if charged separately by the supplier to the recipient.

A close reading would lead us to a conclusion on the following types of charges that are levied at the time of purchasing a property:

1. Stamp Duty/Registration charges- Not included in the transaction value as the same is levied by the Government on the purchaser of the property. Further the same has to be read under the section-Services provided by the Government where GST levy has been carved out under the principle of Statutory/Constitutional Function

2. EB/Bore well connection charges- Generally construction contractors levy these charges at the time of property purchase after quoting a separate rate per square foot. This is subject to the test of pure agent concept. If the pure agent concept fails ( where the contractor makes a profit in the transaction, rather than actually being reimbursed for the cost), the whole of the consideration shall be subject to GST.

3. Parking charges- They purely are a part of consideration and hence they are subject to GST(provided the property is under construction).

4. PMAY Subsidy- PMAY subsidy given to developers for projects being implemented with the State Govt is not a part of the transaction value as the same is given by the Central/State Government(Sec.15 of the CGST Act).

Credit based PMAY subsidy assisted projects enjoy a lesser rate currently(taxed at 8%). The wordings of the notification  would play the trick here as the current recommendation is universal to both the affordable and the non-affordable segments.

Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).

The issue of TDR/JDA, Long term lease premium

Taxation of TDR is a matter of debate within the construction industry and it has been clarified that if the ultimate residential property is taxed, then the transfer of TDR shall not be taxed. This would avoid the cascading effect of the taxes by ensuring single point taxation. Further working capital blockage would be avoided for the builders who purchase TDR.

Key take-away from the 33rd meeting

Another important feature of the proposed rate structure is the treatment of ITC Credit, where the tax is to be discharged at 1% without ITC. The idea behind is to benefit the consumers who have not enjoyed the reduced prices after the onset of GST. Probably the construction industry may be one of the few industries which would be burdened with heavy compliance like the regular taxpayers,  but would be paying taxes like composition dealers.

Undecided issues

The taxation on lottery still remains undecided and hence the current differential tax rate system of 12% for state run lotteries and 28% for state-authorised lottery shall continue.

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February 2021