All residential buildings not completed before March 31, 2019, will have the option to choose between the old goods and service tax (GST) and the new regime announced last month.
The new regime, that provides a lower GST rate but without input tax credit, will be mandatory for all new projects launched after April 1. The transition plan was approved by the GST Council on Tuesday giving flexibility to the real estate sector.
The GST rate for the sector under the earlier regime stood at 12% with input tax credit and 5% without input tax credit for economically weaker sections. In the previous meeting on February 24, the Council had slashed rates for under-construction flats to 5% and for affordable homes to 1% from 8%, effective April 1. However, there will be no input credit for these rates that will be effective from April 1.
“From April 1, builders have to choose either of the options for which they will get time,” revenue secretary A B Pandey said after the 34th meeting of the GST Council on Tuesday.
A statement issued later said promoters will have one -time option to continue to pay tax based on old rates for ongoing projects where construction and actual booking have both started before April 1, 2019 but have not been completed by March 31, 2019.
“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,” the statement said.
Industry welcomed the clarity as it addresses the concern over treatment of the input stock accumulated as part of their longterm purchases.
“The flexibility to opt between two GST schemes available would help in avoiding operational hassles. Real estate developers who choose the new GST rates will have to proportionately reverse their input credit,” said Niranjan Hiranandani, national president, NAREDCO.
Hiranandani reckons that the reduced rate of GST will enhance the customer’s confidence and develop a positive scenario to further garner momentum in sales.
Pandey further said that the decision will help the builders in clearing inventories.
“Industry will have to work out which option works best and come up with the revised price structure quickly. It is important to undertake changes in IT systems, documentation and processes at earliest considering the 1 April 2019 cut off date,” said Pratik Jain, national leader, indirect taxes, PwC.
On apprehensions being raised on possible price rise due to new tax structure, Pandey said if prices escalate, the National Anti-profiteering Authority will look into it and take an appropriate action.
The panel did not take the request of Maharashtra and Gujarat to raise the unit cost threshold for EWS for Mumbai and Pune from Rs45 lakh to Rs 60-70 lakh as no new proposal can be taken up because of the model code of conduct, the official said.
Deloitte India Partner M S Mani said the pragmatic move to segregate under construction projects and new projects would provide relief to builders who were worried about the loss of input tax credit.