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New GST real estate rate to be applicable from April, source 80% materials from registered dealer

02, April, 2019


The GST Council Tuesday approved a transition plan for the implementation of new tax structure for the real estate sector with applicable rules for housing units being applicable from April 1, 2019. 

The Council also decided that under construction projects will have an option to shift to new rate. The GST Council in its 33rd meeting on February 24, 2019 had come up with new rates for housing units. GST will be levied at effective rate of 5% without ITC on residential properties outside affordable segment, while GST shall be levied at effective GST of 1% without ITC on affordable housing properties. 
 
A residential house/flat of carpet area of up to 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value up to Rs. 45 lakh (both for metropolitan and non-metropolitan cities) has been categorized as affordable housing. Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR). 
 
The Council in it meeting today also held that 80% procurement of materials should be from registered dealer. It also announced that up to 15% of commercial space to be treated as residential property for GST purpose. However, the exact contour of this point mooted by the Council is not very clear. 
 
“With some of the key inputs for construction such as bricks, stone, hardware etc. coming from sectors which are largely unorganised, meeting the condition of 80% procurement from registered dealers for concessional GST rate could be challenging, especially in Tier-2 and smaller cities” said Harpreet Singh, Partner, Indirect Tax, KPMG India.
 
According to Saloni Roy, Senior Director, Deloitte India, time will tell whether the reduced GST rates for under-construction properties will give the necessary fillip to the real estate sector which is currently witnessing adversities. “The concern regarding the reduced rate of 5% and 1% is that it is offered without the ability for builders to take input tax credit, which could actually lead to an escalation of costs. The GST council meeting today discussed modalities on transition and made the new rate mandatory for new construction 1 April 2019 onwards,” said Roy.
 
The Council also decided that reversal of input tax credit to be done on propotionate basis and the time limit for transition to new rates will be discussed with the states.
 
“The pragmatic move to segregate under construction projects from new projects would provide relief to builders who were worried about the loss of input tax credit. This would also enable them to price the loss of input tax credits in the new projects. Reversal of Input tax credit on a proportionate basis would entail significant computational issues for builders as each project would be in various stages of construction and have differing pre and post completion sale patterns. Protecting existing input tax credits and mandating the new rates only in respect of new projects would benefit both builders and consumers. The specific statement on invocation of anti-profiteering provisions if the benefits of lower rates are not passed to consumers appears to indicate that the government is keen to protect consumers from a GST-led price increase,” said MS Mani, Partner, Deloitte India. 
 
 


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