Real estate developers with unsold housing inventories can now choose either the old rate or the new one if the project is still under construction on March 31st. This option was given on Tuesday at the Goods and services Tax Council meeting.
The decision cleared the air on possible loss in input-tax credit that is underway if realtors choose the new rate structure. The council approved a formula, which will determine the extent to which tax credit can be claimed on purchases for constructions and 15% commercial space as a residential property of new rate structure.
“Developers will get minimum 15 days to decide on the option, but the exact time would be decided with states in the next few days. This is precisely to solve the problem of unsold inventory. Revenue Secretary Ajay Bhushan Pandey said “Realtors can now weigh the option that benefits the market the most.” Using the formula, input-tax credit would be reversed or be usable on a proportionate basis in the project.
The developer would be eligible to claim the difference, if the input-tax credit exceeds from the formula given. No amount of the input-tax credit will lapse if this formula is used. Experts welcomed the decision. Developers need to do the required math to arrive at the right decision on the option. Many of them welcomed the decision and will help the real estate market. For projects that begin work after April 1, the new rate structure would apply without any relaxation, with a mandate to purchase at least 80% of inputs from registered dealers.
The new tax rate reduces the rate on affordable housing from 8% with input-tax credit to 1% without input-tax credit, and for other houses from 12% with input-tax credit to 5% without input-tax credit. There will be no ITC facility. 80% of purchases (excluding Capital Goods) shall be made from GST registered persons.
Buyers would expect overall reduction in prices and may want to understand the basis of revised pricing. Industry need to be cautious of anti-profiteering provisions and do a detailed analysis for the ongoing projects. Builders need to calculate and assess both the options on a project basis to decide what suits better. For those under construction project owners who opt the old rate structure, the input-tax credit can be set off against tax liability in the normal sense.
Housing costing less than Rs.45 lakh, with space of 60 square metres in metros and 90 square metres in non-metro locations, would be termed affordable, the council decided in a meeting in February.
From 1st April 2019, supply of TDR, FSI, Long term lease (premium) of land by a landowner to a developer shall be exempted if the constructed flats are sold on payment of GST before issuance of Completion Certificate.
New projects beginning on or after 1st April 2019 will fall into the lower GST rate regime automatically. For understanding the new GST rules and regulations in the real estate industry, you can register now with the most well-known ESSPEE Group, they have a group of professionals having key knowledge of new GST, RERA and other such regulations in the field of real estate industry, fashion, movie productions, events and other sectors.