Moneycontrol
Get App
you are here: HomeNewsEconomyPolicy
Last Updated : Mar 19, 2019 07:13 PM IST | Source: Moneycontrol.com

GST Council approves transition plan for new tax rates for real estate sector

Revenue Secretary Ajay Bhushan Pandey said the time limit for transition to new rates will be discussed with states.

Kamalika Ghosh @GhoshKamalika

The GST Council on March 19 allowed builders to choose between higher rates with input tax credits (ITC) on raw material or lower duties without any such benefits for unfinished projects.

The Council, headed by Finance Minister Arun Jaitley, which met through video conferencing in New Delhi, decided that builders can pick between paying 12 percent for non-affordable houses with ITC benefits or 5 percent without the tax rebates for under-construction houses.

Likewise, for 'affordable housing projects', builders can choose between 8 percent with tax rebates or 1 percent without it, Revenue Secretary Ajay Bhushan Pandey said.

The new rates, without ITC benefits, will apply for all projects that begin construction only after April 1, Pandey said.

In the last meeting held on February 24, 2019, the Council had lowered the GST rate to 1 percent from 8 percent for 'affordable houses' and to 5 percent from 12 percent for other houses.

The new rates will kick in from April 1, 2019, but builders will not be eligible to claim ITC benefits after the lower duties come into force.

Builders will have to select between the two sets of rates for projects that are still under construction as on April 1 within a specified time frame, which will be notified later after discussing with states, Pandey said.

“The GST Council has said a reasonable time should be given that would be decided in the next few days in consultation with the states, whether it would be 15 days or one month,” Pandey said.

The change to the new rates and rules will not have any revenue implications given that property are not expected to go up because of the changed system. If the prices change significantly, the GST anti-profiteering body will examine it, he said.

Under current rules, under construction housing projects attract higher GST rates, but developers were given ITC benefits. This allowed them to reduce the final GST payout by offsetting the taxes already paid on inputs or raw material such as cement, steel and paint among others.

Real estate developers had sought clarity on how the new rates will be calculated since projects were at various stages of construction.

Technically, most under construction projects would have bought or stocked up raw material such as steel and cement before April 1 and, therefore, should will be eligible for ITC benefits according to the existing rules.

The formula for reversing the credit has been derived on calculations using proportion of construction completed, invoices issued, ratio of commercial to residential housing, among others, Pandey said.

Moneycontrol had reported on March 15 that the Council will clarify the rules under which builders will be allowed to claim ITC benefits for under-construction houses.

Experts said that the decision on allowing builders to choose between two rates will give clarity to the industry.

"While not exactly ground-breaking, it is indeed an intelligent move by smart play by the incumbent government. With this decision, it has carefully side-stepped conflict with both builders and buyers," said Anuj Puri, Chairman, Anarock Property Consultants.

 
First Published on Mar 19, 2019 02:20 pm
More From
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant