Summary of outcome of 34th Council Meet on GST Rate on Real Estate Sector

The much awaited meet of the GST Council to decide on modalities for GST applicability on Real Estate Sector was held on 19th March, 2019 at New Delhi. This was 34th time the GST Council met. The Council in today’s meeting 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 for Real Estate Sector.

The summary of the aforesaid Press Release has been given in a tabular manner for easy understanding:

GST Council Meet on GST rates for Real Estate Sector:

Section Summary of Discussion
Option in respect of Ongoing Projects ü The promoters shall be given an 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.

ü 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.

TaxMarvel Comments – The Promoters need to compute benefit either to migrate or continue under existing 8%/12% scheme before an option to switch is to be made.

New Tax Rates Ø 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 shall be as follows:

(i) New rate of 1% without input tax credit (ITC) on construction of affordable houses shall be available for –

(a) all houses which meet the definition of affordable houses as decided by GST Council (area 60 sqm in non- metros / 90 sqm in metros and value upto RS. 45 lakhs), and

(b) affordable houses being constructed in ongoing projects under the existing Central and State housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).

(ii) New rate of 5% without input tax credit shall be applicable on construction of –

(a) all houses other than affordable houses in ongoing projects whether booked prior to or after 01.04.2019. In case of houses booked prior to 01.04.2019, new rate shall be available on instalments payable on or after 01.04.2019.

(b) all houses other than affordable houses in new projects.

(c) 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.

TaxMarvel Comments – Option of 1% without ITC shall be available on new projects as well as ongoing projects which meet the criterion of affordable housing and affordable housing being constructed in existing central or state housing scheme eligible for concessional rate of 8% GST. New rate shall be applicable on all houses other than affordable houses whether booked prior to or after 01.04.2019, commercial offices, shops, etc and all housing other than affordable houses in new projects.

Conditions for New Tax Rate The new tax rates of 1% (on construction of affordable housing) and 5% (on other than affordable houses) shall be available subject to following conditions,-

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%, tax shall be paid by the builder @ 18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates

TaxMarvel Comments – Conditions for availing new scheme is restrictive since 80% of the inputs and input services are to be procured from Registered Persons. Shortfall any has to be paid by builder under RCM at 18%, Cement at 28% and Capital goods at respective rate, and no ITC on same shall be available. This may turn the option unviable for the builders.

Transition for ongoing projects opting for the new tax rate v Ongoing projects (buildings where construction and booking both had started before 01.04.2019) and have not been completed by 31.03.2019 opting for new tax rates shall transition the ITC as per the prescribed method.

v The transition formula approved by the GST Council, for residential projects extrapolates ITC taken for percentage completion of construction as on 01.04.2019 to arrive at ITC for the entire project. Then based on percentage booking of flats and percentage invoicing, ITC eligibility is determined. Thus, transition would thus be on pro-rata basis based on a simple formula such that credit in proportion to booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.

v For a mixed project transition shall also allow ITC on pro-rata basis in proportion to carpet area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 1.4.2019) to the total carpet area of the project

TaxMarvel Comments – Computation of ITC for ongoing projects shall have to be made as per the method elaborated above. For pure residential projects ITC shall be available based on percentage completion of construction and eligibility shall be determined based on pro-rata basis of credit in proportion to the booking and invoicing of the flat.

For mixed projects (residential as well as commercial projects) – ITC shall be allowed on pro-rata basis of carpet area of commercial portion.

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 01.04.2019.

§ 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 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 under the 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 builder to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion.

§ The above decisions are expected to address the problem of cash flow in the sector.

Amendment to ITC Rules § ITC rules shall be amended to bring greater clarity on monthly and final determination of ITC and reversal thereof in real estate projects. The change would clearly provide procedure for availing input tax credit in relation to commercial units as such units would continue to be eligible for input tax credit in a mixed project.

Note – This is for information only. For exact details of changes, the notification/Circular may please be referred to, as and when they are issued.

Update Source – Press Release issued by CBIC

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Rohit is an Enterpreneur and has founder a consulting boutique firm - TaxMarvel Consulting Services LLP. View Full Profile

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6 Comments

  1. Ankur Mehrotra says:

    Dear Sir,

    Request you to clarify the following:

    1. I require an explanation on the definition on affordable housing. Will the residential under construction flats with area more than 90sqm in non metroa but cost less than 45 lacs fall under affordable housing and attract 1% gst or will attract 5% gst.

    2. what will happen to the ITC already in our gst ledger in transition. Should we raise invoices to our clients who have already booked flats and claim gst from them to adjust the ITC.

    3. Can we claim ITC for the purchases made till 31.03.2019 in the installments recieved from 01.04.2019.

    Waiting for your reply.
    Thanks,
    Ankur Mehrotra
    Kanpur

    1. fcsrohit says:

      Hi SIr,

      Affordable housing has been enumerated in GST Clarification by CBIC vide F.No. 354/52/2018-TRU dated 7th May 2018.

      Remember this is optional scheme. You may evaluate if you wish to continue under existing scheme or switch to new scheme.

      ITC already availed shall lapse on 1st April 2019. You may raise invoice for the amounts due on or before 31st March 2019 to utilise the ITC.

      We may have a discussion if you wish to. You may reach out to me on 9503031788. I shall clarify your queries in detail

      Regards

      Rohit

  2. Rasik Dagli says:

    It seems that now a days you are giving more attention on GST. 90% of the contents on your portal are regarding GST.
    Please do not forget Income Tax which is searched by viewers.

    1. fcsrohit says:

      Hi Rasik,

      my area of practice is GST and Corporate Laws. I am not much into Income tax except for understanding issues on income tax

      Apologies for not share anything on income tax

      Regards

      Rohit

  3. N SAI KISHORE says:

    I think 60 sq mts for metropolitan area and 90 sq mts for non- metropolitan area for an apartment to fall under the category of ‘affordable houses’.
    Further it is opined that this scheme is not available for jouses, it is available for apartments only.
    Clarity whether ‘cement’ is not taken into consideration for arriving 80% on par with capital goods or not?

    1. fcsrohit says:

      Affordable housing shall mean housing scheme approved by Govt.

      Hi Sir

      Cement is not treated as capital goods per se unless capitalised for works contract.

      Cement if purchased from URD supplier, shall attract 28% under reverse charge mechanism and ITC shall not be available on such RCM paid.

      Carefully examine the new scheme before switching

      Regards

      Rohit

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