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33rd GST Council meeting focuses on real estate sector

To boost the residential segment of the real estate sector which was hoping for a reduction in GST rates for under construction houses, the following recommendations were made by the GST Council in its 33rd meeting:

Background: Real estate is one of the most complex areas as far as taxation is concerned. This sector was subject to multiple taxation scheme by governments. In the earlier tax regime, the central government used to levy service tax on under construction projects and state government would levy VAT on the material used in construction. Though there was a composition scheme in the VAT system, still there used to be confusion and litigation with respect to Works-contract related issues.

Under the Goods & Services Tax Act, 2017, all the construction activities are being categorized as services.

The effective rate of GST payable on purchase of under construction residence or commercial properties from builder involving transfer of property in land or undivided share of land to the buyer, is 12% with full input tax credit ( GST payable @18% on 2/3rd of the amount for the property; 1/3rd  of the amount having been deemed as value of land or undivided share of land supplied to buyer.)

Changes after 33rd GST Council Meeting:

The council has decided to block the input tax credit which is currently being allowed with GST rate of 12% on normal residential houses and 8% on affordable homes keeping in mind abatement available for the land cost.

Now, after removal of input tax credit effective rate of GST on non-affordable housing projects is 5% (without ITC) and for an affordable housing project, it's been fixed at 1% (without ITC). The new rate shall become applicable from 1st of April, 2019.

Definition of affordable housing shall be:-
A residential house/flat of carpet area of up to 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having a value up to Rs. 45 lacs (both for metropolitan and non-metropolitan cities).
Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (the whole of MMR).

GST exemption on TDR/ JDA, long term lease (premium), FSI: Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable.

Impact of the above key decisions-

i. The buyer of the house gets a fair price and affordable housing gets very attractive with GST @ 1%.
ii. The interest of the buyer/consumer gets protected; ITC benefits not being passed to them shall become a non-issue.
iii. Cash flow problem for the sector is addressed by the exemption of GST on development rights, long term lease (premium), FSI etc.
iv. Unutilized ITC, which used to become cost at the end of the project gets removed and should lead to better pricing.
v. Tax structure and tax compliance become simpler for builders.

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