GST on real estate sector
GST Council in the 34 meeting held on 19 March, 2019 at New Delhi discussed the operational details for implementation of the recommendations made by the council in its 33 meeting for lower effective GST rate of 1% in case of affordable houses and 5% on construction of houses other than affordable house. The council decided the modalities of the transition as follows.
Transitional provision: Option in respect of ongoing projects:
The promoters shall be given a one -time option as mentioned below on ongoing projects that is on buildings where construction and actual booking have both started before 01.04.2019 and which have not been completed by 31.03.2019:
- To continue to pay tax at the old rates -> effective rate of 8% or 12% with ITC.
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.
New tax rates:
The new tax rates which shall be applicable to new projects or on-going projects which have exercised the above option to pay tax in the new regime are as follows.
New rate of 1% without input tax credit (ITC) on construction of affordable houses shall be available for:
All houses which meet the definition of affordable houses as decided by GSTC (area 60 sqm in metros / 90 sqm in non- metros and value upto RS. 45 lakhs), and
- affordable houses being constructed in on-going projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3 land abatement).
New rate of 5% without input tax credit shall be applicable on construction of–
All houses other than affordable houses in on-going 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.
Conditions for the new tax rates:
The new tax rates of 1% (on construction of affordable) and 5% (on other than affordable houses) shall be available subject to following conditions,-
- Input tax credit shall not be available,
- 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 However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.
Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019:
The following treatment shall apply to 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 land owner 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. This will achieve a fair degree of taxation parity between under construction and ready to move property.
- 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).
- 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
- 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
The decisions of the GST Council have been presented in this note in simple language for easy understanding. The same would be given effect to through Gazette notifications/ circulars which alone shall have force of law.