New GST Structure on Real Estate

gst structure real estate

The last few years have been disruptive for the real estate sector. RERA coming into effect, demonetization and the new GST rules have changed how people invested drastically. As of 1, April 2019, the GST council has brought about a sea of change in their norms for real estate investment.

The developers have two options for their ongoing projects, where construction has started before April 1, 2019. They can either go ahead with the old tax rate of 12% with the credit or with a new 5% rate without credit.

For affordable projects, the new rate is 8% with credit and 1% without credit. For affordable housing, the cap on the price of the property is Rs 45 Lakh for both metro and non-metro cities. However, the project will have to meet the carpet area requirements of 60 sq. mt. in metros and 90 sq. mt. in non-metros to be eligible for the 1% rate. The new rates will be applicable from April 1, 2019.

Salient features of decisions taken by the GST Council in the 34th meeting held on 19th March, 2019

Option for under-construction projects

Under Construction projects as on 31st March, 2019 shall have an option to choose old rates (effective rate of 8% or 12% with ITC) with input tax credit or new rates without input tax credit.

If the option is not exercised within the prescribed time limit then new rates shall apply.

Conditions for the new tax rates:

Atleast 80% of the material to be procured from registered dealers. Further, on shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis.

However, Tax on cement purchased from an unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.

Input tax credit shall not be available.

Applicability of new tax rates:

The new tax rates which shall be applicable as follows:

1% without input tax credit (ITC) on the construction of affordable houses shall be available for:

Houses having area of 60 sqm in non- metros / 90 sqm in metros and value upto RS. 45 lakhs

Under construction affordable houses presently eligible for concessional rate of 8% GST (after 1/3rdland abatement)
5% without input tax credit shall be applicable on the construction of:

Under construction houses other than affordable houses presently booked prior to or after 01.04.2019. For houses booked prior to 01.04.2019, new rate shall be available on installments payable on or after 01.04.2019.

Commercial apartments having a carpet area of not more than 15% of the total carpet area of all apartments.

The transition for ongoing projects opting for the new tax rate:

Ongoing projects not been completed by 31.03.2019 shall transition the ITC in proportion to the booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.

For mixed project transition of ITC shall be allowed on a pro-rata basis in proportion to the carpet area of the commercial portion.

Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019

Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted with the condition constructed flats are sold before issuance of completion certificate and tax is paid on them.

The exemption can be withdrawn (limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses) if flats sold after the issue of completion certificate.

The builder shall be liable to pay tax on TDR, FSI, long term lease (premium) on the date of issue of completion certificate.

All these are subject to change as per the new council meeting reports.

What does it mean for you and me?

Beyond the technical and financial jargon, what it means for a homebuyer can be summed up in one word. Benefits. First and foremost, it will reduce the pricing disparity between under-construction and completed projects. The guarantees that RERA offers when coupled with a reduction in price will dispel hesitation associated with investing in under-construction properties. This will incentivize sales of under-construction properties and spur demand for new projects which will bring you competitive rates.

At Fortius Infra, we are GST compliant making it easier for you to take your decision.