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Posts tagged as GST Council

Explained: The new options in real estate GST, and how it impacts you

Builders can now choose between two tax rate structures in case of under-construction residential projects, the Goods and Services Tax (GST) Council.

The new reduced tax rates will kick in from April 1.The Council, which met through video-conferencing, has given builders the option of choosing between a 12% rate with the option of input tax credit or 5% without it. In the case of affordable housing projects, the choice is between an 8% rate with tax credit and a 1% rate without it.
The option of tax rates in case of under-construction buildings as on April 1 has to be exercised within a specified time, which is expected to be notified shortly. For new projects beginning April 1, the lower tax rates will apply.Before todays meeting, the Council had on February 24 decided to cut the tax rate on under construction residential properties.

How does this impact stakeholders? The approval of the optional scheme for under-construction projects has been a demand of the real estate industry.The go-ahead by the GST Council brings some relief for this sector, specifically in handling transition issues, according to analysts.Tuesdays decisions also offer greater clarity on taxation of under-construction houses, especially those sold during the transition to the new tax system.

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Realtors hail option to charge old GST rates on ongoing projects

The real estate industry on Tuesday hailed the GST Council’s decision to allow realty firms charge old GST rates from buyers in those projects,Last month, the Council had decided to cut GST rate on affordable homes to 1 per cent without input tax credit (ITC) from earlier 8 per cent with ITC.
The GST on under-construction flats, which are not under the affordable housing segment, was reduced to 5 per cent without ITC, from 12 per cent earlier with ITC. These rates will be effective from April 1.While approving a transition plan for the implementation of new tax structure from the next fiscal, the GST Council decided that the developers of residential projects, which are incomplete as on March 31, will have an option either to choose the old structure with ITC or to shift to new 5 per cent and 1 per cent rates without ITC.“The real estate industry is particularly happy that the Government has taken all precautions to ensure a smooth and easy transition to the new regime of rates, and allowed the option to follow the existing rates for ongoing projects.
“The period of wait and watch as regards to GST for both the industry and the consumers is now over. We should expect colour to return to the real estate this Holi,” CREDAI President Jaxay Shah said in a statement.Transition issuesNAREDCO’s President Niranjan Hiranandani said the GST Council addresses the transition issues on ITC for the ongoing projects making it flexible for the developers to choose between the old GST and new GST schemes.The option to developers will help avoid operational hassles, he said, adding that the developers who choose the new GST rates will have to proportionately reverse their input credit.CII’s Director-General Chandrajit Banerjee said: “Providing choice to realtors to opt for the reduced rates or continue with existing rates with input tax credit for ongoing housing projects shall make compliance easier for them”. He said the real estate industry had taken up the issue of complexities of apportioning and reversal of input tax credit for the ongoing projects.
Anarock Chairman Anuj Puri termed this decision as an intelligent move by the incumbent government. “With this decision, it has carefully side-stepped conflict with both builders and buyers”.Some reprieveKnight Frank India CMD Shishir Baijal said the announcement of giving developers a choice of tax regime for ongoing projects has brought some reprieve to developers’ concern on the loss of ITC in the new regime.“The choice of selecting the GST regime would depend on the respective project dynamics.The ones with healthy sales traction are likely to continue with the earlier regime to maintain their profitability,” he said.

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GST on real estate: Can developers recover input credit cost from home buyers?

In a decision which would have far-reaching implications for the real estate sector, the GST Council meeting has prescribed a GST rate of 5%.
The changes would be brought into effect from April 1, 2019, and suitable notifications would be issued to give effect to the same.It appears that the option of paying GST at a higher rate by claiming input tax credit would not be available going forward.Apart from a reduction in rates, it is also proposed that exemptions would be provided from payment of GST to transfer of development rights, lease premium, etc, for such residential property on which GST is payable.
The reduction in tax rates is being proposed with a view to provide relief to the industry which is grappling due to slowdown. Whilst reduction in rates is a welcome relief for the industry, let us evaluate whether these changes would lead to other unintended consequences.For this purpose, let us consider the impact due to proposed changes for cases where a project is going to be launched i.e.new projects and projects which are already underway.For new projects, there would be a reduction in upfront GST chargeable i.e. 5%/1%, instead of the current 12%/8% rate.But absence of input tax credit would mean that the said taxes paid on procurements would be loaded on to the base price. Whether this would mean an overall reduction in price for the end consumer would depend upon other factors like ratio of construction costs vis-à-vis selling price, cost of land, etc.
Whatever may be the outcome, the developer would be in a position to decide and control the outcome i.e.
reflect the same in the base price to be charged for the residential property.A bigger challenge awaits the existing projects.Let us say, the developer has contractually agreed for base price plus GST. Since the GST rate has reduced from 12% to 5%, he cannot charge the rate of 12% any longer.Further, as per the condition of the proposed amendment, the developer would not be able to claim input tax credit. Therefore, it becomes a cost.
Whether he can recover the same from the customer would depend upon the terms of his sale agreement, but looking at the current environment, it would be a herculean task.It is also commonly seen that the project has been advertised as an all-inclusive cost i.e. a lump sum price including GST, stamp duty, etc.For such cases, seeking any additional consideration due to denial of input tax credit would be difficult.It would also be interesting to see the implications of the anti-profiteering provisions.

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