Builders and home buyers are trying to understand the best deal for them under the new Goods and Services Tax (GST) rates for ongoing projects and it seems to be turning into a double-edged sword for some.

Real estate developers have time until May 10 to decide on whether to stick to the old 12 (residential) or 8 per cent (affordable housing) rate with input tax credit or the new 5 per cent (residential) and one per cent (affordable housing) rate with no credits.

However, the choice between the two rates for ongoing real estate projects is not proving to be an easy one with concerns over how the over-used credit will be calculated and adjusted in case the new rate is taken and the customer reaction if the builder chooses to stay with the old rate and there is no reduction in the prices. According to Niranjan Hiranandani, co-founder and MD of Hiranandani Group and President of industry association NAREDCO, the problem is only transitional in nature and for under construction and ongoing projects.

“This is a transition issue and once newer projects take over, this problem will go away. But the transition will take some time,” he pointed out.

This is further compounded by the fact that with the ongoing Lok Sabha elections, there is little opportunity for any clarity from the GST Council or the Finance Ministry.

Common point

“The confusion may continue for a while till the time the developer and buyer settle on which rate should be adopted that will benefit both,” noted Suresh Nandlal Rohira, Partner, Grant Thornton India, adding that having faced such situations in the past on change in rates in restaurants, the government should give additional moratorium period to transition and settle such issues.

Experts pointed out that there were a number of complaints to the National Anti-Profiteering Authority following the rate GST changes for restaurants.

Some builders are also unsure whether revised agreements and prices can be submitted for registration under the Real Estate Regulatory Authority. “It's not an easy decision for the builder to decide whether to stay with the old scheme or opt for the new scheme for ongoing projects. If they continue with the old scheme, then managing the customer sentiment would be a challenge. In the new scheme, the mechanism for recovery of input tax credit from the customer needs to be well thought through,” said Pratik Jain, Partner and Leader, Indirect Tax, PwC India.

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