A Group of States’ Finance Ministers (GoFMs) is likely to suggest a two-tier lower GST rate structure for the housing sector. Based on its recommendation, the GST Council, the apex policy making body for the indirect tax regime, will take a final call on the matter.

The GoFMs met here on Friday to discuss the proposal. “Our aim is to lower the rate,” the Deputy Chief Minister and Finance Minister of Gujarat Nitin Patel said after chairing the meeting of the group. Meanwhile, according to an official, who attended the meeting, the GoFMs favoured lowering GST rates on residential houses to 5 per cent without input tax credit and to 3 per cent for those under affordable housing. Both the rates will be without input tax credit and one condition for 5 per cent is to source at least 80 per cent of materials from a GST-registered supplier.

Other members of the group include Finance Minister of Maharashtra, Sudhir Mungantiwar, Finance Minister of Karnataka, Krishna Byre Gowda, Finance Minister of Kerala, Thomas Isaac, Finance Minster of Punjab, Manpreet Singh Badal, Finance Minister of Uttar Pradesh, Rajesh Agarwal, and Panchayat Minister of Goa, Mauvin Godinho.

Final recommendation

Since the Friday’s meeting was attended by Patel, Godinho, Badal and Mungantiwar (through video conferencing), it was proposed that all the members will discuss among themselves and finalise the recommendation before forwarding it to the GST Council. The proposal to lower the GST rate was discussed in the 32 meeting of GST council, held on January 10. As there was no consensus, the matter was referred to a GoFMs.

At present there is a three-tier structure for the housing projects. First, there is no GST on sale of complex/building and ready to move-in flats where sale takes place after issue of completion certificate by the competent authority. Second, GST is applicable on sale of under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale. Card rate for such flats is 18 per cent, but effective rate is 12 per cent after abatement of 33 per cent (cost of land). And, the third structure is affordable housing where the effective rate is 8 per cent. Both these rates are with full input tax credit (ITC).

Commenting to Friday’s deliberation, Pratik Jain, Indirect Tax Partner at PwC India, said while the intention of the government is to provide relief to the end customer, from a structural standpoint, it should be ensured that the chain of GST credit is not broken. Perhaps a better approach would be to reduce prevailing GST rate on residential property, say bringing the effective tax rate down to 8 per cent from 12 per cent, while continuing the benefit of input tax credit. From industry view point, if such scheme is implemented, they need to compute the loss of input tax credit which is likely to increase the base price, and the same shall need to be appropriately communicated to the customers.

“We have seen in the past that such scheme (as introduced for the restaurant sector) has lead to lot of dispute on account of consumers feeling short-changed and therefore, going to the anti-profiteering authority, resulting in unwarranted litigation. Therefore, it is important for the industry to take cognisance of this on an urgent basis and re-compute the GST impact to be adjusted in the price of ongoing and upcoming projects,” Jain said.

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