The GST Council held its 34th meeting at New Delhi on 19th March, 2019. In the meeting, council has taken decisions relating to the operational details for implementation of the GST rate on real estate sector. The GST council decided upon the modalities of the transition for real estate sector which are as follows:

• 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. 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 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 credit shall be applicable on construction of,-

1. 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;
2. all houses other than affordable houses in new projects and
3. commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of all apartments.

• The new tax rates of 1% (on construction of affordable) and 5% (on other than affordable houses) shall be available subject to following conditions-

1. Input tax credit shall not be available,
2. 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.

• Ongoing projects i.e. 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 Input Tax Credit (ITC) as per the prescribed method.
• The following treatment shall apply to TDR/ FSI and Long term lease for projects commencing after 01.04.2019:

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.
2. The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from land owner to builder under the reverse charge mechanism (RCM)
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.
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.

• 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.

For more information please refer the attached Press Release.

Source: Press Information Bureau

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