New GST Rates on Real Estate at 1% or
5% with ITC
·
80% of Inputs must Pay GST
·
Old Rate of 12% to be Availed before 31.03.2019
[PIB Delhi Press Release
dated 19th March 2019]
GST Council in the 34th
meeting held on 19th March, 2019 at New Delhi
discussed the operational details for implementation of the recommendations made
by the council in its 33rd meeting for lower effective GST rate of 1%
in case of affordable houses and 5% on construction of houses other than affordable
house. The council decided the modalities of the transition as follows.
Option in respect of ongoing
projects:
2. The promoters shall be given a one -time option to continue to pay tax at the
old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings
where construction and actual booking have both started before 01.04.2019) which
have not been completed by 31.03.2019.
3. The option shall be exercised
once within a prescribed time frame and where the option
is not exercised within the prescribed time limit, new rates shall apply.
New tax rates:
4. The new tax rates which shall be applicable to new projects or ongoing projects
which have exercised the above option to pay tax in the new regime are as follows.
(i) New rate of 1% without
input tax credit (ITC) on construction of affordable houses shall be available for,
(a) all houses which meet
the definition of affordable houses as decided by GSTC (area 60 sqm in non- metros / 90 sqm in metros
and value upto RS. 45 lakhs), and
(b) affordable houses being constructed in ongoing
projects under the existing central and state housing schemes presently eligible
for concessional rate of 8% GST (after 1/3rd land abatement).
(ii) New rate of 5% without
input tax creditshall be applicable on construction of,-
a.
all houses
other than affordable houses in ongoing projects whether booked prior to or after
01.04.2019. In case of houses booked prior to 01.04.2019, new rate shall be available
on instalments payable on or after 01.04.2019.
b.
all houses
other than affordable houses in new projects.
c.
commercial apartments such as shops, offices etc. in a residential real estate
project (RREP) in which the carpet area of commercial apartments is not more than
15% of total carpet area of all apartments.
Conditions for the new tax
rates:
5. The new tax rates of 1%
(on construction of affordable) and 5% (on other than affordable houses) shall be
available subject to following conditions,-
a.
Input tax
credit shall not be available,
b.
80% of inputs
and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums))
shall be purchased from registered persons. On shortfall of purchases from 80%,
tax shall be paid by the builder @ 18% on RCM basis. However,
Tax on cement purchased from unregistered person shall be paid
@ 28% under RCM, and on capital goods under RCM at applicable rates.
Transition for ongoing projects
opting for the new tax rate:
6.1 Ongoing projects (buildings where construction
and booking both had started before 01.04.2019) and have not been completed by 31.03.2019
opting for new tax rates shall transition the ITC as per the prescribed method.
6.2 The transition formula
approved by the GST Council, for residential projects (refer to para 4(ii)) extrapolates
ITC taken for percentage completion of construction as on 01.04.2019 to arrive at
ITC for the entire project. Then based on percentage booking of flats and percentage
invoicing, ITC eligibility is determined. Thus, transition would thus be on pro-rata
basis based on a simple formula such that credit in proportion to booking of the
flat and invoicing done for the booked flat is available subject to a few safeguards.
6.3 For a mixed project transition
shall also allow ITC on pro-rata basis in proportion to carpet area of the commercial
portion in the ongoing projects (on which tax will be payable @ 12% with ITC even
after 1.4.2019) to the total carpet area of the project.
Treatment of TDR/ FSI and
Long term lease for projects commencing after 01.04.2019
7. The following treatment
shall apply to TDR/ FSI and Long term lease for projects
commencing after 01.04.2019.
7.1 Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer
shall be exempted subject to the condition that the constructed flats are sold before
issuance of completion certificate and tax is paid on them. Exemption of TDR, FSI,
long term lease (premium) shall be withdrawn in case of
flats sold after issue of completion certificate, but such withdrawal shall be limited
to 1% of value in case of affordable houses and 5% of value in case of other than
affordable houses. This will achieve a fair degree of taxation parity between under
construction and ready to move property.
7.2 The liability to pay tax
on TDR, FSI, long term lease (premium) shall be shifted
from land owner to builder underthe reverse charge mechanism
(RCM).
7.3 The date on which builder
shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under
RCM in respect of flats sold after completion certificate is being shifted to date
of issue of completion certificate.
7.4 The liability of builder
to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion. Decisions from
para 7.1 to 7.4 are expected to address the problem of cash flow in the sector.
Amendment to ITC rules:
8. ITC rules shall be amended to bring greater clarity on monthly and final
determination of ITC and reversal thereof in real estate projects. The change would
clearly provide procedure for availing input tax credit in relation to commercial
units as such units would continue to be eligible for input tax credit in a mixed
project.
9. The decisions of the GST
Council have been presented in this note in simple language
for easy understanding. The same would be given effect to through Gazette notifications/
circulars which alone shall have force of law.