Policy

Realty firms can opt for old or new rates for ongoing residential projects

Our Bureau New Delhi | Updated on March 19, 2019 Published on March 19, 2019

Representative image   -  P_V_SIVAKUMAR

GST Council approves transition plan for new rate structure

Real estate developers have the option to adopt a lower rate of Goods and Services Tax (GST) without input tax credit (ITC), or go for the existing rate with ITC.

This applies to ongoing projects (buildings where construction and actual booking have both started before April 1, 2019, but which will not be completed by March 31, 2019). Projects beginning on or after April 1 will fall into the lower GST rate regime automatically.

A decision to this effect was taken by the GST Council at its 34th meeting on Tuesday.

Briefing media persons after the meeting, Revenue Secretary AB Pandey said the Council has approved a transition plan for the new rate structure for real estate residential projects.

At the meeting chaired by Finance Minister Arun Jaitley, the proposal of options was suggested by Bihar Deputy Chief Minister Sushil Kumar Modi. It was supported strongly by West Bengal Finance Minister Amit Mitra and others.

Tuesday’s deliberation was a follow-up to the decision taken at last month’s meeting, where the Council had decided on a two-tier rate structure for under-construction flats. Affordable houses will attract 1 per cent GST while for all others it is 5 per cent. There will be no ITC.

Also, in order to curb cash payments, it was decided that at least 80 per cent of the inputs should be purchased from registered dealers, but this will not include the purchase of capital goods.

Time to choose

Pandey further said it has been agreed that developers will be given time to choose one of the two options. This could be 15 days or a month.

He added that the decision will help builders clear inventories. He also expressed hope that prices will not go up; and if there is an escalation, the National Anti-profiteering Authority will look into it.

MS Mani, Partner at Deloitte India, said the pragmatic move to segregate under-construction projects from new projects would provide relief to builders worried about the loss of ITC. This would also enable them to price the loss of input tax credits in the new projects.

Rajat Mohan, Partner at AMRG & Associates, felt the reality sector is already loaded with multiple legislation restrictions. “The sector needs uniform, transparent and unambiguous transition rules for the entire industry,” he said.

Parth Mehta, MD of Paradigm Realty, said the GST Council’s previous announcement was a buyer-centric move, as the affordable housing rates were without ITC. “Since the developers are already facing various headwinds, resulting in shrinking margins and poor cashflow, the decision to avail ITC in ongoing under-construction houses on a proportionate basis will certainly serve as some breather for the developer,” he said.

Published on March 19, 2019
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