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34^th GST Council Meeting

34^th GST Council meeting was held on 19^th March 2019 and decision with regard to the implementation of lower GST rate on real estate has been taken.

Let us first recall that in the 33^rd GST Council Meeting, it was recommended for lower GST rate @ 1% in case of affordable housing and GST rate @ 5% on the construction of houses other than affordable house and the modalities of transition of the same is decided in the 34^th GST Council Meeting.

Following points are decided in the 34^th GST Council Meeting

New Tax Rates and its Conditions

• New GST rate @ 1% on the construction of affordable houses is available for the following
  • In the case of new projects, houses which meet the definition of affordable houses as decided by GSTC (i.e. non-metros – area of 60 sqm and metros – area of 90 sqm and value up to INR 45 Lakhs); and
  • In case of ongoing projects, affordable houses which are being constructed under the present central and state housing scheme and are eligible for 8% concessional GST rate.
• New GST rate 5% is available for the following
  • In the case of new projects, all houses other than affordable houses;
  • In case of ongoing projects, all houses other than affordable houses whether booked prior to or after 1st April 2019.

If the houses are booked prior to 1^st April 2019, the new GST rate 5% shall be available on instalments payable on or after 1^st April 2019.

• In the case of commercial apartments like shops/offices in a residential real estate, wherein, carpet area of the commercial apartments is not more than 15% of the total carpet area of all the apartments.

Conditions for Availing Benefit of New GST Rates

• Input Tax Credit shall not be available in case the new GST rate benefit is availed;
• It is mandatory for the builders to purchase 80% of inputs and input services from the registered person. If the target of 80% purchase is not achieved, the builder is required to pay the following taxes on reverse charge mechanism (RCM) –
  • The builder is required to pay 18% tax on RCM on a shortfall of purchases from 80%;
  • The builder is required to pay 28% tax on cement purchased from an unregistered person; and
  • The builder is required to pay applicable taxes on capital goods under RCM.

Options in Respect of the Ongoing Projects

In respect of the ongoing projects i.e. projects wherein construction and booking have started before 1^st April 2019 and which has not been completed by 31^st March 2019, the promoters shall be given a one-time option to continue to pay tax at the old rates i.e. 8% or 12%.

However, the promoters are required to opt for the option within the prescribed time and if the promoters have not opted for the option, new GST rates will apply.

Transition for Ongoing Projects in Case Opting for New Tax Rates

Ongoing projects that are opting for new GST rates have required a transition of the input tax credit (ITC) as per the prescribed method.

Transition formula for the residential projects wherein new GST rate is 5% extrapolates ITC availed for the % completion of construction as on 1^st April 2019 to arrive at ITC for the entire project. After that based on the % booking of flats and % invoicing, ITC eligibility can be determined. In short, the transition would be on a pro-rata basis.

In case of mixed projects, transition shall allow the input tax credit on a pro-rata basis in proportion to the carpet area of the commercial portion in the ongoing projects to the total carpet area of the project.

Treatment of TDR, FSI and Long Term Lease for the Projects Commencing after 1^st April 2019

Supply of TDR, FSI and long term lease of land by a landowner to the developer shall be exempt from tax provided the constructed flats are sold before issuance of the completion certificate and applicable tax is paid on the same.

In case the flat is sold after issuance of the completion certificate, the exemption shall be withdrawn and tax @1% in case of affordable house and @5% in cases other than affordable houses shall be payable. In such a case, the builder shall be liable to pay tax under RCM on the date of the issue of the completion certificate.

Applying the reverse charge mechanism, the liability to pay tax has been shifted from landowner to the builder in case of TDR, FSI and long term lease premium.