Analysis of recommendation made by GST Council in 33rd meeting on Real Estate Sector

33rd meeting of GST Council held on 24 February 2019. GST Council has recommended rationalisation of GST rates on real estate in this meeting. To boost the demand in the residential segment of the real estate sector, the GST Council, on February 24, 2019, slashed GST rates for residential under-construction flats.

At present, if a non-affordable under-construction property is bought, the transaction attracts GST rate at 18% on two-thirds of its transaction value, which effectively comes to 12%  GST (on total transaction value) with full input tax credit (ITC). Similarly, in case of affordable under-construction property, GST rate is charged at 12% on two-thirds of its transaction value , which effectively comes  8% with full Input Tax Credit . One-third of the value is considered to be the cost of land.

Now GST Council has made following recommendations in its 33rd meeting held on 24 February 2019.

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 of applicability of New Rates:

The new rate shall become applicable from 1st of April, 2019.

Definition of affordable housing shall be:-

A residential house/flat of carpet area of upto 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value upto Rs. 45 lacs (both for metropolitan and non-metropolitan cities).

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

GST Council has recommended GST exemption on TDR/ JDA, long term lease (premium), FSI.:- 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.

Points to emphasis:

1. How ITC shall be availed in cases where the subject matter is partially residential and partially commercial project.

2. How ITC/ITC reversal shall be dealt with, where properties are under construction out of which few are sold on or before 01.04.2019 and few are sold after 01.04.2019.

3. What will be the fate of ITC remaining as on 31.03.2019.

4. How the tax liability shall be determined on whole unit, where the part of the tax is levied before effective date and part of the tax to be levied post the effective date.

Point to be Noted  

1. That there is no change in rate w.r.t commercial properties. Moreover these are effective rates, which means it will be apply to the total amount charged and not on 2/3 portion of total amount charged.

2. That there is no recommendation about the rate of inward supply of works contract to builder w.r.t construction of residential property.

Issues are endless in real sector. Let’s wait for the clarity.

Comparative analysis of cost to buyer of Residential property

as per Recommendations of GST Council (33rd Meeting)

Particulars Present Effective Rate of GST-8% Proposed Rate of GST-5% Outside affordable Housing segment Proposed Rate of GST-1% On affordable Housing segment
When ITC allowed When ITC not allowed When ITC not allowed
Cost of Land (A) 10.00 10.00 10.00
Cost of Inputs (B) 25.00 25.00 25.00
ITC on above (Suppose 18%)'(C ) 4.50 4.50 4.50
Whether ITC Available ITC available to Builder ITC not available to Builder ITC not available to Builder
Total Cost of land and Inputs  (A+B)=D 35.00
Total Cost of land and Inputs and ITC (A+B+C)=D 39.50 39.50
Rate of Margin (E) 10% 10% 10%
Total Margin  (D*E) = F 3.50 3.95 3.95
Taxable Value (F+D)=G 38.50 43.45 43.45
Rate of GST (Present & Proposed)  = H 8% 5% 1%
Amount of GST (G*H) =I 3.08 2.17 0.43
Total Cost to Buyer  (G+I)=J 41.58 45.62 43.88
Additional cost to buyer (K) 4.04 2.30

Analysis of recommendation made by GST Council in 33rd meeting on Real Estate Sector

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  1. A.Roy Choudhury says:

    Could not understand how comparison was made between present effective GSM rate of 8%, which is for affordable housing, and proposed effectI’ve GSM rate of 5% which is for non affordable housing There should have been another computation with present effective GSM rate of 12% for non affordable housing to make comparison proper with proposed effective rate of 5%.

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