NEW GST STRUCTURE FOR REAL ESTATE W.E.F. APRIL, 2019

[Dr. Sanjiv Agarwal]

33rd Meeting of GST Council

The 33rd meeting of GST Council was held on 20.02.2019 which was later adjourned to 24.02.2019.  In a major move, GST Council recommended a much needed breather to real estate sector so much so that it would be beneficial to both – builders-developers as well as buyers and this sector, already reeling under slow down / recession will be able to see demand picking up due to lower GST. The rates of GST on under construction housing segment has been proposed to be reduced to 1% for affordable housing projects and 5% for at non-affordable housing projects but with the rider that no input tax credit shall be allowed. This shall be applicable from April 1, 2019 for which necessary notifications / circulars shall be issued after the scheme is finalized. Similarly, intermediate tax on development rights like TDR, JDA, lease premium FSI etc shall be exempt where such residential property has already suffered GST. For this purpose, ‘affordable housing’ has been defined based on area and city.

Recommendations of 33^rd GST Council Meeting

The 33rd GST Council meeting held on 20.02.2019 and later adjourned to 24.02.2019 made the following recommendations:

Extension in due date of Form GSTR 3B

• The due date of filing of return in Form GSTR 3B for the month of January, 2019 was extended upto 22.02.2019.

• However, for registered persons whose principal place of business is in the State of Jammu and Kashmir the last date was extended to 28.02.2019.

Change in GST rates for Real estate (housing)

• Under construction properties or ready-to-move-in flats where completion certificate has not been issued at the time of sale (other than affordable housing segment): from 12% (with ITC) to 5% (without ITC)

• Affordable housing segment: from 8% (with ITC) to 1% (without ITC)

[Affordable house will mean a residential house/ flat of carpet area of upto 90 sqm in non-metropolitan cities/ towns and 60 sqm in metropolitan cities* having value upto ₹ 45 lacs (both for metropolitan and non-metropolitan cities)].

*Metropolitan Cities are Bengaluru, Chennai, Delhi National Capital Region (NCR) (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region (MMR)].

To ascertain the eligibility as ‘affordable housing project’ , it is important to note that both the conditions of area and value must be satisfied. If any of them is not fulfilled, the project will not qualify as ‘affordable housing’.

The proposed amendment shall not apply to :

• Non affordable housing projects

• Commercial projects

In case of partly commercial and party residential projects, the applicable rate to unit based on its commercial or residential nature shall apply, i.e., 12% for commercial and 5% for residential portion.

The amendment is expected to bring in following advantages to all stakeholders :

(i) The buyer of house gets a fair price and affordable housing gets very attractive with GST @ 1%.

(ii) 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 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 becomes simpler for builders.

Changes in GST taxation for real estate at a glance

The new rates shall be applicable from 01.04.2019 for which  notification has been issued on 07.03.2019.

GST exemption on TDR/ JDA, long term lease (premium), FSI: 

• Intermediate tax on development right, such as Transfer of Development Rights (TDR), Joint Development Agreement (JDA), lease (premium), Floor Space Index (FSI) shall be exempted only for such residential properties on which GST is payable.

34^th Meeting of GST Council

GST Council met for the 34th time since its constitution yesterday (19th March, 2019) for taking crucial decisions on real estate sector. Taking forward the discussions and decisions of 33rd GST Council meeting dated 24.02.2019 GSTC has now taken important decisions in relation to levy of GST on real estate sector including manner of transition to new lower tax regime w.e.f. April 1, 2019.

As already announced, GST on affordable housing shall be @ 1% and on other than affordable housing @ 5%. The ongoing projects will have an one-time option to continue under old scheme with ITC or switch over to new one without ITC. The  time limit for transition will be discussed with states. However, reversal of ITC will have to be done in proportion to area or space. In the new scheme, 80% of the materials shall be procured from registered dealers except for capital goods, development rights, leases premium etc. This is a stringent condition as on shortfall of purchases from 80%, builders shall be liable to pay GST @ 18% under reverse charge mechanism. In case of cement purchased from unregistered supplier, GST shall be levied @ 28% under reverse charge method. Relief has also been granted to commercial apartments (shops, offices etc) in any residential project for lower GST rate of 5% where carpet area of such commercial space is not more than 15% of the total carpet area of all apartments. In case of Transfer of development rights, FSI and long term lease premium, burden of GST has been shifted to builder under reverse charge with time of supply to be determined on the basis of date of issue of completion certificate. The same time of supply would apply to JDA’s. In case of input tax credit, ITC rules shall be amended to have clarity and provide procedure for monthly and final determination of ITC and its reversal for real estate projects.

Salient features of decisions taken by the GST Council in the 34^th meeting held on 19^th 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 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 construction of affordable houses shall be available for:

• Houses having area of 60 sqm in non- metros / 90 sqm in metros and value upto ₹ 45 lakhs
• Under construction affordable houses presently eligible for concessional rate of 8% GST (after 1/3^rd land abatement)

• 5% without input tax credit shall be applicable on 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 instalments payable on or after 01.04.2019.
• Commercial apartments having carpet area of not more than 15% of total carpet area of all apartments.

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 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 pro-rata basis in proportion to 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.
• 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 issue of completion certificate.
• Builder shall be liable to pay tax on TDR, FSI, long term lease (premium) on the date of date of issue of completion certificate.

Election Commission of India has announced the schedule for general elections in India, i.e., from 10th April, 2019 in seven phases with counting taking place on 23rd May, 2019. This also indicates that GSTC may now not be able to take major tax reforms and other tax friendly measures in view of the embargo of election code of conduct. There will now be no meeting till General Elections over except emergency issues.

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